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Table of contentsLetter from the Círculos 13

Executive summary 15

Report 21

1. Introduction 23

2. Market dynamism 27

3. Basic resources 33

4. Labor market 43

5. Financial market 49

6. Business dynamism 55

7. The contribution of the Public Administration 61

8. Social progress indicators 69

9. Assessment of future priorities 73

Recommendations 77

Appendices 97

Bibliography 109

10

The Barometer of the Círculos 2018

Fig. 1. Trend in GDP growth (%). Spain, Eurozone, 2007-2017 23Fig. 2. Ranking of largest exporters worldwide (2016) 24Fig. 3. Main imbalances in the Spanish economy, relating to the Eurozone, 2017 24Fig. 4. Forecasts of percentage population in Spain of working age

(16 to 66 years, inclusive), 2017 to 2050 24Fig. 5. Main international competitiveness rankings, 2017 25Fig. 6. Rankings in the Social Progress Index, 2017 25Fig. 7. Trend in GDP and contribution of domestic and overseas demand 27Fig. 8. Expectations for activity 28Fig. 9. Anticipated impact of the political events in Catalonia on selected parameters 28Fig. 10. Anticipated impact of the political events in Catalonia on the figures

for the business itself 29Fig. 11. Elements that make the products and services of Spanish

companies attractive 2016 and 2018 29Fig. 12. Most important reasons for investing overseas, 2016 & 2018 29Fig. 13. Competitive strengths of the Spanish economy, 2016 & 2018 30Fig. 14. Competitive difficulties of the Spanish economy, 2016 & 2018 30Fig. 15. Positioning of subsidiaries in Spain in comparison with other group subsidiaries 31Fig. 16. Measures that would make investment in Spain more attractive 2018 31Fig. 17. Basic resources. Collected scores in the Barometer of the Círculos, 2018 33Fig. 18. Basic resources. Trend in the collected scores between the editions

of 2014, 2016 and 2018 33Fig. 19. Basic resources. Collected evaluations according to size of company, 2018 34Fig. 20. Needs for improvements in prices, services and investment in infrastructure, 2018 35Fig. 21. Comparative evaluation of education at various levels in Spain according

to international indices 36Fig. 22. Skills mismatch in the employment post (% of employees) 37Fig. 23. Most significant measures to improve the quality of training and employability in Spain 37Fig. 24. Innovation ranking of countries according to the Innovation Scoreboard 2017 39Fig. 25. Most important public measures to improve the innovative capacity

of Spanish companies 39Fig. 26. Necessary measures to improve the accommodation of digital transformation in Spain 40Fig. 27. Labor productivity. Comparison of Spain with the Eurozone and selected countries,

2000 – 2017 (GDP/hour worked, $) 43Fig. 28. Labor market. Collected scores in the Barometer of the Círculos, 2018 44Fig. 29. Labor market. Trend in the collected scores between the editions

of 2014, 2016 and 2018 44Fig. 30. Labor market. Collected scores according to size of company, 2018 45Fig. 31. The most pertinent reforms to improve the situation in the labor market in Spain 45Fig. 32. Human resource measures most successfully deployed in companies 46Fig. 33. Ranking of Spain (out of 144 countries) in specific aspects of the Global Gender

Gap Report 2017 46

Index of figures

11

Fig. 34. Financial market. Collected scores in the Barometer of the Círculos, 2018 49Fig. 35. Financial market. Trend in the collected scores between the editions

of 2014, 2016 and 2018 50Fig. 36. Financial market. Collected scores according to size of company, 2018 50Fig. 37. Sources of financing used by companies 51Fig. 38. Principal problems affecting the Spanish financial market 51Fig. 39. Level of compliance with maximum payment deadlines 51Fig. 40. Average payment time in Europe, 2017 52Fig. 41. Business dynamism. Collected scores in the Barometer of the Círculos, 2018 55Fig. 42. Business dynamism. Trend in the collected scores between the editions

of 2014, 2016 and 2018 56Fig. 43. Business dynamism. Collected scores according to size of company, 2018 56Fig. 44. Reasons impeding greater entrepreneurship in Spain 57Fig. 45. Distribution of businesses by size, 2008-2017 (% of total) 57Fig. 46. Main difficulties faced by small and medium-sized enterprises

to grow into larger businesses 58Fig. 47. Measures to achieve sustainable growth of medium-sized enterprises 58Fig. 48. Measures to expedite the procurement of permits and licenses 58Fig. 49. The contribution of public authorities Collected scores in the

Barometer of the Círculos, 2018 61Fig. 50. The contribution of public administration. Trend in the collected scores

between the editions of 2014, 2016 and 2018 62Fig. 51. The contribution of public authorities Collected scores according

to size of company, 2018 62Fig. 52. Measures to raise the efficiency and transparency of public administrations

and increase their focus on serving citizens 63Fig. 53. The most important initiatives to ensure adequate control of the public deficit 63Fig. 54. Most beneficial tax reforms for the growth of Spanish business 63Fig. 55. Measures to improve the speed and quality of the administration of justice 64Fig. 56. Ranking of Spain in terms of perception of absence of corruption 64Fig. 57. Most effective measures in the fight against corruption 65Fig. 58. Ranking in the Social Progress Index, 2018 69Fig. 59. Social Progress. Collected scores in the Barometer of the Círculos, 2018 70Fig. 60. Social Progress. Collected scores according to size of company, 2018 70Fig. 61. Necessary measures to improve the degree of social progress in Spain 71Fig. 62. Short and medium-term priorities in economic policy in Spain 73Fig. 63. Short and medium-term priorities in economic policy in the EU 74Fig. 64. Medium and long term competitive challenges 74Fig. 65. Profile of respondents – Main activity of company 98Fig. 66. Profile of respondents – Number of employees in company 98Fig. 67. Profile of respondents – Turnover 99

Lette

r fro

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e Círc

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13

In its fifth edition, the Barometer of the Círculos, restates its commitment to Spanish society, by seeking out solutions that are aimed at rectifying the socio-economic imbalances that persist in our country. In order to achieve a more global and structured vision, the three institutions promoting the Barometer of the Círculos, Círculo de Empresarios, the Círculo

de Economía and the Círculo de Empresarios Vascos, have benefited from the collaboration of the Institución Futuro de Navarra, the Asociación Valenciana de Empresarios, the Círculo de Empresarios de Galicia, the Círculo Empresarial Leonés, the Círculo de Economía de Mallorca, the Observatorio Económico de Andalucía and the Fundación Conexus.

The 2018 Barometer analyses the structural situation of the Spanish economy, focusing on identifying the main competitive, economic and business strengths and weaknesses that are impacted by the social, technological and geopolitical transformations taking place worldwide. This analysis is complemented by a study of the position that our country occupies within the main international indicators of competitiveness and in the Social Progress Index (Social Progress Imperative), in order to understand the degree of cohesion and social well-being in Spain in comparison with the main advanced economies. In order to support this study, this edition has once again incorporated a survey to gather together the opinions of a sample that is representative of the Spanish business structure in terms of both geography and sector, including small and medium-sized enterprises as well as major national and multinational corporations that operate in Spain.

Based on the conclusions obtained from the Barometer of the Círculos, a series of recommendations are presented regarding the areas of the economic and business context in which both the public administration and the companies themselves should act. In order to achieve this, the good practices of countries as well as companies within Spain in terms of youth employment, dual vocational training, intra-entrepreneurship, volition to grow and work-life balance are taken as a benchmark.

The recommendations of the 2018 Barometer show that, following five years without structural reforms, Spain must begin a period of cohesion and the formation of pacts. This will have two aims: to resolve the major issues that persist, such as high rates of unemployment and indebtedness, and to increase the degree of internationalisation of our country. It is therefore urgent that a long-term strategy be designed to provide the Spanish economy with greater competitiveness, resilience and prominence on the world stage.

As in previous editions, those of us in the Círculos hope that the 2018 Barometer will foster necessary debate between the public administration, social stakeholders and civil society regarding how we may achieve more inclusive, sustainable growth that guarantees the future of our welfare state and a proper intergenerational balance.

Letter from the Círculos

Juan José BrugeraPresident - Círculo de Economía

John de ZuluetaPresident - Círculo de Empresarios

Javier OrmazabalPresident - Círculo de Empresarios Vascos

Exec

utiv

e sum

mar

y

15

Executive summary

Over the last four years, Spain has managed to ensure economic recovery, create employ-ment and drive the export of goods and ser-

vices Despite this growth, the economy continues to show significant imbalances:

• At 16.7% of the working population, the unem-ployment rate remains very worrying. This is dou-ble the average for the Eurozone (8.5%) and falls particularly hard on the long-term unemployed and the youngest members of the population.

• Public sector debt amounts to 98.3% of GDP, above the average for the Eurozone (86.7%). It is also 38.3 percentage points above the 60% of GDP set out in the Stability and Growth Pact.

• The public deficit remains at 3.1% of GDP, again greater than the average for the Eurozone (-0.9%). Consequently, our country remain sub-ject to the Excessive Deficit Procedure of the the European Commission.

Moreover Spain, as in the case of other major economies, is facing significant global challenges such as the advance of digitalisation and disrup-tive technologies, the socio-economic prominence of the Asia-Pacific region and the ageing of the population, among others. Accordingly, the Spanish economy is in need of new structural reforms that enable it to drive forward competitiveness, correct macroeconomic imbalances and guarantee the fu-ture sustainability of the Welfare State and a proper intergenerational equilibrium.

Within this context, the Barometer of the Círculos analyses the degree of competitiveness of the Span-ish economy, presenting examples of good practices in other countries and economic policy recommen-dations.

Among the comparative advantages of the Spanish economy, the 2018 Barometer mainly identifies the following:

• Good scoring of the quality and cost of skilled labor, within both technical and creative profes-sions.

• High-quality physical infrastructure.

• Attractive size and location of the domestic mar-ket.

• A significant and growing export sector, in terms of both industrial products and services.

In contrast, the aspects regarding competitiveness that most worry business people consist of:

• The quality of the Spanish education system, pri-marily the formal primary and secondary educa-tion system and vocational training.

• Insufficient efforts with respect to innovation and technological adaptation.

• The inefficient workings of Public Administrations, with limited deployment of the management tools and criteria of the private sector.

• The workings of the labor market, where there is room for improvement by reducing the dichotomy between temporary and permanent employment.

• Corruption and the hidden economy.

• The pension system.

In turn, the Spanish economy also displays tradition-al structural problems, such as the limited average size of companies, access to alternative sources of financing, the sluggishness of the legal system and the inefficiencies of the tax collection system.

16


The political instability in Catalonia is another fac-tor of concern and it is considered that the nega-tive impact of this on the economy will be sustained throughout the medium and long term, primarily due to a foreseeable fall in investment. Moreover, it is felt that its impact on small businesses will possibly be greater due to their dependence on the local market.

STRUCTURE OF THE BAROMETER OF THE CÍRCULOS

The Barometer is structured by means of three tools. The first of these is based on a review of the leading international indicators of competitiveness (Global Competitiveness Report of the World Economic Fo-rum, the IMD World Competitiveness Yearbook and the Doing Business report of the World Bank). The results of these indicators in terms of averages for the OECD and better placed countries are compared with those of Spain. The results of 40 international sector-based indices have also been compiled, in or-der to compare specific aspects such as the perfor-mance of the Spanish economy and institutions with those of the rest of the world (Appendix 2).

The second consists of the performance of an on-line questionnaire aimed at measuring the opinion of business people regarding the strengths and weak-nesses of the Spanish economy and ascertaining their evaluation of the main regulatory actions that have been carried out and which they consider to be a priority for the future. Some 340 business people have participated in this edition, the majority of these being members of the various Círculos and collabo-rating entities.

Lastly, the third tool confirms the results of the on-line questionnaire by carrying out 21 interviews with Business people from various sectors, enabling the factors that determine competitiveness in their com-panies and the reforms that they consider a priority in ensuring recovery and job creation to be ascer-tained. Rather than the results of these interviews being presented explicitly, they are shown in order to qualify or highlight some of the messages of the report.

As in the case of the previous editions, the 2018 Barometer provides examples of international good practice in various aspects of business and of good

Composition of the 2018 Barometer

Source: Barometer of the Círculos, 2018.

Trendin domestic demand

Internationalactivity

Enviro

nmental

sustainability

Senior talent

Integration of imm

igration

Youth talent

Integration and development

of working w

omen

Collaboration between

businesses and the local

comm

unity

Health and well-being

of workersEffect of publicly managed

companies

Effect of the use of subsidies

Tax burden

Corruption

Adaptation of b

usinesses

Competition su

pervisio

n

Compe

titio

n in

thei

r sec

tor

Reg

ulat

ory

barr

iers

and

bure

aucr

acy

Rel

atio

nshi

p be

twee

n

effic

ienc

y an

d gr

owth

Con

trib

utio

n of

SM

Es

to d

ynam

ism

Business p

ayment term

s

Pub

lic Autho

rity

paym

ent terms

Trend in cred

it

(last 12 months)

Access to credit

Access to capital financing

Contribution of com

pany

stakeholdersG

eographical mobility

Functional mobility

within the business

Cost of qualified labor

Availability of qualified labor

Efficiency of the

labor market

Degree of use of ITC

Quality of business innovation

Learning capacity

Proficiency in languages

Quality of formal education

Quality of infrastructure

Co

ntri

but

ion

of

entr

epre

neur

ship

to

dev

elo

pm

ent

Efficiency in public spending

Functioning of the justice

system

Foreigninvestment

Market dynamism

Social progress

Contribution of public

administration

Businessdynamism

Basic Resources

Labor and financial

markets

1. Appendix 3 compiles the international good practice chosen in previous editions of the Barometer of the Círculos.

17

Executive summary

business practice in Spain in terms of youth employ-ment, dual vocational training, intra-entrepreneur-ship, business growth and work-life balance.

The structure of the Barometer covers the following aspects of the business context:

• The perception of Spain as a market and center of production within a global context.

• The capabilities of basic resources in terms of physical infrastructure, human capital and innova-tion and technology as a basis for future growth.

• The evaluation of the labor and financial market situation.

• The analysis of the factors that determine the dynamism of the business sector, such as the degree of entrepreneurship and the workings of markets for goods and services.

• The contribution of Public Administrations to the development of a competitive environment.

• Social progress, as an indicator of the degree of inclusivity of our model of economic growth.

In each of these, the performance of the Spanish economy in its most significant aspects is evaluated, a total of 40 variables being analysed.

Lastly, the Barometer of the Círculos finishes off with a series of recommendations aimed at driving com-petitiveness, generating inclusive economic growth and guaranteeing the future sustainability of the Welfare State.

SUMMARY OF RESULTS

In the 2018 Barometer, the vitality of the market continues to be the highest scored area (4.9, within a range of between 1 and 7), followed by business dynamism (4.3). The aspects with the lowest ratings were the contribution of Public Administration (3.3) and the labor market (3.6). A positive trend is noted with regard to the financial market (from 2.9 ìn 2014 to 4.1 in 2018) and, to a lesser extent, the labor market (from 3.3 in 2014 to 3.6 in 2018, although slightly below the 3.8 of 2016) and of the contribu-tion of Public Administration (from 3.0 in 2014 to 3.3 in 2018). With regard to the remaining aspects of the environment, business dynamism and basic resourc-es, evaluations similar to those obtained in previous editions were noted (2014 to 2016).

MARKET DYNAMISM

The score regarding the current vitality of the econ-omy is positive. More specifically, the growth outlook with respect to domestic demand is improving in line with the consolidation of the economic recov-ery, although the forecasts for exports and overseas investment were tempered. In addition, concern re-garding the political events in Catalonia was noted and these are expected to have knock-on effects on the economy, above all the Catalan economy.

Spanish products and services continue to be prized abroad as a result of their price-quality trade off and, increasingly, their technology content.

With respect to Spain’s potential for foreign invest-ment, businesses continue to see our country as an attractive destination due to the size of the market and the skills and qualifications of the workforce.

Average score by section. Barometer 2014, 2015, 2016 & 2018

N.B.: The range of scores is from 1 to 7. The mid-point of the range of scores is 4.

Source: Barometer of the Círculos, 2014 to 2018 (no observations exist for 2017).

1. Appendix 3 compiles the international good practice chosen in previous editions of the Barometer of the Círculos.

Market dynamism Basic resources Labor market

2014 2014 20142015 2015 20152016 2016 20162018 2018 2018

4.9 4.9 4.8 4.93.9

3.34.0 3.64.0 3.84.0

3.6

Financial market Business dynamism The contribution of the Public Administration

2014 2014 20142015 2015 20152016 2016 20162018 2018 2018

2.93.8 3.9 4.1 4.4

3.0

4.43.1

4.33.2

4.33.3

18


The macro-economic difficulties that troubled the respondents in other editions of the Barometer of the Círculos are considered to have been overcome, al-though the political environment is of some concern.

BASIC RESOURCES

The quality of physical infrastructure is universal-ly noted as one of the most important competitive advantages of the Spanish economy. Nevertheless, concerns remain regarding:

• The reduction in transport infrastructure mainte-nance expenditure.

• High energy prices.

• The insufficient development of rail freight trans-port, in particular the connections with ports and the lack of progress along the Mediterranean cor-ridor.

It is additionally considered that decisions con-cerning infrastructure investment in Spain lack full transparency and rigorous cost benefit analysis, negatively affecting the productivity of public assets, indebtedness, the credibility of institutions and the potential for public-private partnerships.

In education, the 2018 Barometer continues to iden-tify areas for improvement. More specifically, the un-favorable position of Spain with respect to the OECD average is evident at all levels of education and in the study of sciences and maths, areas of knowl-edge that are ever more sought after by businesses. Moreover, the business people interviewed generally showed concern at the lack of deployment of voca-tional training in our education system, particularly in the case of dual vocational training.

Among the measures considered most appropriate in order to improve the quality of training and foster employability in Spain, the business people inter-viewed highlighted:

• The need to speed up learning and proficiency in languages.

• Increasing the participation of businesses in vo-cational training.

• Fostering of the values of entrepreneurship, start-ing at primary school.

• Adapting the offering of qualifications to the labor market.

In terms of innovation, the scores received also sat below the OECD average. Other than an increase in public investment in R&D, the main public measures indicated in order to improve the innovation capaci-

ty of businesses relate to encouragement of private initiatives and enabling collaboration between busi-nesses and other institutions.

The companies interviewed state that their business models have been clearly impacted by digital trans-formation and they clearly acknowledge the need to adapt to this. So as to achieve this, it is consid-ered necessary to promote training in digital skills throughout all phases of the education system, as well as the STEM degrees (Sciences, Technology, Engineering and Mathematics), among other factors.

LABOR AND FINANCIAL MARKETS

The Spanish labor market continues to display sig-nificant imbalances, the leading one of these being the unemployment rate. Despite having fallen since the beginning of the economic recovery, this remains at a very high level. The 2018 Barometer continues to bring together adverse evaluations by businesses regarding the efficiency of the labor market, these still being below the average for the OECD.

The business people interviewed consider that the 2012 labor reform has had a positive impact, although they remain worried by the dichotomy in employment status and, in particular, by the exces-sive use of temporary contracts. Gender inequality represents another of the imbalances displayed by the Spanish labor market. As a result, businesses are successfully deploying work-life balance and equal opportunity promotion programs in the sphere of professional development.

En el mercado financiero el acceso al crédito y la situación de las entidades financieras se ha nor-malizado. Nevertheless, there remain deficiencies in the development of alternative sources of financing, affecting particularly start-ups and smaller business-es. The financial sector is likewise facing significant challenges due to the impact of new competing technologies and a European regulatory framework that has yet to be completed.

Lastly, the Act on Supplier Payment Terms continues to be breached, both by companies and Public Ad-ministrations. This has a particularly harmful impact on small and medium-sized enterprises.

BUSINESS DYNAMISM

The business people gave highly positive scores, at levels similar to or exceeding those of OECD, of aspects of the workings of Spanish markets, such as competition in sectors, the trade-off between ef-ficiency and growth and the ability of businesses to adapt. Nevertheless, the scores were slightly poorer in terms of the supervision of competition, the main problems regarding this aspect being considered to be regulatory barriers and bureaucracy. Differences

19

Executive summary

are noted between the evaluations given by large businesses and small and medium-sized enterpris-es, the latter giving lower scores in almost all as-pects considered.

Entrepreneurship remains in need of improvement due not only to the presence of regulatory hurdles but also cultural and educational barriers. Among the specific difficulties that small and medium-sized firms point out in terms of growth are a lack of busi-ness vision, ambition and leadership, employment regulations and the difficulty of attracting and retain-ing talent, whereas difficulties in accessing finance are decreasing in terms of importance.

Moreover, in order to foster the sustained growth of medium-sized businesses, the need to international-ize, drive innovation and take advantage of the digital revolution are highlighted.

PUBLIC ADMINISTRATIONS

The contribution of Public Administrations remains the aspect of the competitive environment receiving the greatest criticism in this edition of the Barometer of the Círculos. The perception exists that the size of Public Administrations is excessive, their structure too complex and that the management of both finan-cial and human public resources is far removed from the efficiency criteria required in the private sector. The evaluations of the administration of justice and the tax burden are also poor. Corruption continues to be a cause for worry along with the political situation in Catalonia this past year.

The options most favored by the respondents in or-der to achieve more efficient and effective manage-ment on the part of the Public Administrations are:

• To reduce the size of Public Administration.

• To make the management of the public sector more similar to that of the private sector.

• To improve the use of technology by the Public Administration.

• Greater private management in the provision of public services.

SOCIAL PROGRESS

Although international indicators position Spain favorably in terms of social progress, the general evaluation made by business people regarding the variables analysed in this area is moderate, the best score being achieved by the health and well-being of workers. In contrast, environmental sustainability, the integration of immigrant communities and the best use of talent, particularly the talents of older workers, are of concern. The score given by small businesses is lower than that of large companies in all aspects concerning social progress.

Among the necessary measures to move forward with regard to the degree of social development in Spain, education in a culture of endeavor, improve-ment of the quality of employment, guarantees of basic needs and the drive towards equality of access to higher education and gender equality are high-lighted.

Rep

ort

21

Report

22


23

In 2017, the Spanish economy exceeded the eco-nomic forecasts from the beginning of the year, making four consecutive years of expansion fa-

vored primarily by the recovery of vitality within the EU and synchronized global growth that has driven the excellent performance of the Spanish export sec-tor since 2009.

Following five years of intense growth, the Spanish economy is displaying profound, positive changes that point towards the progressive consolidation of a new production model with a more even balance between domestic and foreign demand. Since 2014 and for the first time since joining the EU, we are growing without generating current account deficits, giving our economy greater resilience against future changes in the economic cycle.

Since the beginning of the crisis, the Spanish ex-port sector has been running at record levels. The volume of exports of goods and services saw ag-gregate annual growth between 2009-17 of some 62%, increasing its weight within the economy from 22.7% to 34.1% of GDP. In turn, the current account balance has gone from posting a deficit of 9.6% of GDP in 2007 to a surplus of 1.9% in 2017.

Spain occupies 16th place in the worldwide ranking of goods exporters and 11th place among service exporters.

Despite the acceleration of economic growth over the last four years, the Spanish economy still suf-fers from its main macroeconomic imbalances in comparison with the Eurozone average. Unemploy-

1. Introduction

Figure 1 Development in the growth of GDP (%). Spain, Eurozone, 2007-2017

Source: Developed in-house, with data from Eurostat, 2018.

Spain

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Eurozone

3.2

4.23.8

1.1

-3.6

-1

0

1.4

3.4 3.3 3.1

-2.9

-1.7

3

0.4

2.1

-4.4

1.6

-0.9

-0.3

1.3

2.11.8

2.3

24


ment stands at 16.7% of the working population (compared with 8.2% in 2007 and reaching its peak in 2013) with special emphasis on long-term unemployed and youth unemployment. Public sec-tor borrowing reaches 98.3% of GDP (compared with 35.5% in 2007)2 and the public deficit 3.1% of GDP (compared with a surplus of 1.9% in 2007) (Figure 3).

Together with these imbalances, the business envi-ronment is affected by major new global challenges such as the advance of digitalisation and disruptive technologies, the ageing of the population and fall in the working population, primarily in advanced econ-omies (Figure 4), along with the socio-economic prominence of the Asia-Pacific region, among others.

Overcoming these macroeconomic imbalances and challenges requires improvements to the competi-tiveness of the Spanish economy. In order to achieve this, it is necessary to introduce structural reforms that guarantee sustained, growth over the short and long term, as well as the future sustainability of the Welfare State.

The current competitiveness of the Spanish econ-omy is shown by its position in the ranking of the leading international indicators of competitiveness. Spain occupies the 34th position in the Global Com-petitiveness Report, WEF (out of a total of 137 coun-tries), the 36th in the World Competitiveness Year-book, IMD (63 countries), and the 28th in the Doing Business, World Bank (190 countries). These posi-

Figure 4 Forecasts of

percentage population in Spain of working age (16 to 66 years,

inclusive), 2017 to 2050

Source: Developed in-house with data from national accounting data, National

Statistics Institute

Figure 2 Ranking of largest

exporters worldwide

Source: Developed in-house with data from the World Trade Statistical Review

(WTO) 2017,

Figure 3 Main imbalances of

the Spanish economy in comparison with the

Eurozone,

N.B. Deficit and debt data for the Eurozone refer to the third quarter of

2017.

Source: Developed in-house with data from National Statistics Institute,

Ministry of Competitiveness and Eurostat, 2018.

2. This value contrasts with the fall in private sector debt from 191.2% of GDP in 2007 to 139.3% (consolidated debt of non-financial sectors).

1st

2nd

3rd

4th

5th

16th

1st

2nd

3rd

4th

5th

11th

CHINA

UNITED STATES

GERMANY

JAPAN

NETHERLANDS

SPAIN

UNITED STATES

UNITED KINGDOM

GERMANY

FRANCE

CHINA

SPAIN

Goods Services

Spain

Spain Eurozone

Spain EurozoneEurozone

-3.1

98.316.7

8.586.7

-0.9

Unemployment rate Public debt

Public deficit

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

67.0%

63.6%

54.4%

25

1. Introduction

tions are similar to the ranking of Spain in terms of per capita income (position 31), but lower than that which would correspond to Spain taking the weight of the Spanish economy according to nominal GDP at worldwide level as a benchmark (position 14)3 .

Comparing the trend of the Spanish position in the international competitiveness rankings considered as a whole, from 2007 to 2017, in recent years neither any progress or recovery to the positions reached prior to the crisis is noted (Figure 5).

Figure 5 Leading international rankings of competitiveness, 2017

Sources: Developed in-house based on the Global Competitiveness Report (WEF), 2017,World Competitiveness Yearbook (IMD), 2018 and Doing Business (World Bank), 2018.

Figure 6 Rankings in the Social Progress Index, 2017

Source: In-house development based on the Social Progress Index, 2017.

2. This value contrasts with the fall in private sector debt from 191.2% of GDP in 2007 to 139.3% (consolidated debt of non-financial sectors).

3. Ranking of per capita income and GDP (in US dollars) for 2016. Most recent observation of the World Economic Outlook Database of the IMF.

The indices of competitiveness do not directly col-lect aspects related to the well-being of society as a whole, such as inclusive growth or equal opportuni-ties. This, however, is shown in index developed by Social Progress Imperative. In terms of this indicator, Spain occupies the 16th position out of 128 coun-tries, occupying one of the top 4 positions in areas such as “access to basic knowledge”, “health and well-being” and “environmental quality” (Figure 6). In the remainder of this document we shall present a more detailed evaluation of the aspects of the busi-

ness environment that explain the position of Spain in these international rankings, identifying interna-tional and business experiences that may be used as benchmarks.

Lastly, and with this diagnosis as a context, a series of economic policy recommendations are made with the aim of improving the capacity of the Spanish economy to overcome its structural imbalances and face up to new, global challenges and opportunities.

1st

2nd

3rd

4th

5th

16th

DENMARK

FINLAND

ICELAND

NORWAY

SWITZERLAND

SPAIN

Global ranking (128 countries) Ranking of Spain, by area

Basic human needs 23rd

Nutrition and medical care 15th

Water and sanitation 7th

Housing 24th

Personal safety 27th

Foundations of well-being 4th

Access to basic knowledge 4th

Access to information and communications 20th

Health and well-being 1st

Environmental quality 3rd

Opportunities 17th

Personal rights 26th

Personal freedom and freedom of choice 26th

Tolerance and inclusion 10th

Access to higher education 17th

26


27

This chapter brings together the expectations of the respondents with respect to domestic demand, exports and investment overseas in

2018, comparing this with those obtained in previ-ous editions of the Barometer. The evaluation made by business people regarding the impact that the political situation in Catalonia may have on the Cat-alan economy and that of Spain as a whole is also presented. The evaluation of the overseas activity of

Spanish companies and the attractiveness of their products and services is also identified. Lastly, the strengths and competitive difficulties faced by Spain as a destination for international investment are in-cluded.

The consolidation of the growth of the Spanish economy over the last three years at around 3% has generated an upturn in domestic demand (Figure 7).

2. Market dynamism

Figure 7 Trend in GDP and contribution of domestic and overseas demand (% change year-on-year and percentage points)

Source: Círculo de Empresarios based on National Statistics Institute and Eurostat, 2018.

Domestic demand Spain (pp)

Overseas demand Spain (pp)

GDP Eurozone

GDP Spain

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

3.1

3.5

1.7

0.4 0.5 0.5 0.6

0.1 -0.1

1 1

1.8 1.71.9

2.12.4

2.7 2.7

3.43.2

3 3 3.1 3.1 3.1

2.9 2.2 2 2.5 2.5 3 3.2

28


The 2018 Barometer displays this trend in that ex-pectations regarding the growth of domestic demand over the coming 12 months improve slightly, where-

as those relating to exports or overseas investment over the coming three years are tempered (Figure 8).

Figure 8 Expectations

of activity

Source: Barometer of the Círculos, 2015 to 2018.

Figure 9 Anticipated impact of the political events in Catalonia on selected

parameters


IMPACT OF THE POLITICAL INSTABILITY IN CATALONIA

The possible impact that recent political events in Catalonia may have on some economic parameters is incorporated into this edition. Figure 9 shows the opinion of the businesses surveyed. It is noted that the anticipated impact on the growth of the Catalan economy and its potential to attract foreign invest-ment is highly negative It is also anticipated that it will have a negative impact on the Spanish econo-my as a whole and on foreign investment in Spain,

though not to the same degree. It is also felt that the events will negatively impact trade flows between Catalonia and other regions of Spain, as well as the ‘Spain brand’ itself.

In this regard, the business people surveyed high-lighted the fact that this impact will extend over the medium and long term, primarily due to the delayed effect of the withdrawal of investment. They also consider that the impact will be greater on small businesses that are more dependent on local mar-kets.

4.945.14 5.05

4.62

5.13

4.72

5.17

4.65 4.65

7

6

5

4

3

2

1

Trend in domestic demand Exports

2015

2016

2018

Investment overseas

Growth of the Catalan economy

Growth of the Spanish economy

Potential for attracting overseas

investment in Catalonia

Potential for attracting overseas

investment in Spain

Trade flows between Catalonia

and the rest of Spain

The ‘Spain brand’

1.95

3.35

1.68

3.50

2.67

2.98

1 2 3 4 5 6 7

Very negative

Area of negative impact Area of positive impact

Neutral Very positive

29

2. Market dynamism

The business people surveyed were also asked to re-spond concerning the knock-on effects of events in Catalonia on the results of their businesses in terms of turnover, employment and investment decisions in

Catalonia. The respondents once again gave nega-tive forecasts of the impact on the three parameters, although the scores assigned were not as low as in the case of the foregoing question (Figure 10).

Figure 10 Anticipated impact of the political events in Catalonia on the figures for the business itself


Figure 11 Elements that make the products and services of Spanish companies attractive 2016 and 2018

N.B.: The percentages are calculated according to the number of respondents who have chosen that option as one of the three most relevant.

Source: Barometer of the Círculos, 2016 and 2018.

EXPORTS AND FOREIGN DIRECT INVESTMENT ON THE PART OF SPANISH COMPANIES

Spanish products and services remain attractive in overseas markets, essentially due to their good price-quality ratio, their adaptation to local needs, and their technological level. They are also valued for aspects such as competitiveness in price and design (Figure 11). In comparison with the 2016 edition of the Barometer, the importance assigned to quality/price and price competitiveness falls slightly. Nev-

ertheless, and representing a key improvement, the importance of technology as a differentiator grows.

The leading motives behind Spanish companies in-vesting directly overseas continue to be the the pos-sibility for diversification (27%), which increases in importance in comparison with 2016, along with the potential for growth and profitability in the market in question (26%) (Figure 12). The need to grow in or-der to achieve global critical mass is also considered to be particularly important (22%).

Figure 12 Most important reasons for investing overseas, 2016 and 2018



Turnover

Employment

Decisions regarding investment in Catalonia

3.63

3.74

3.09

1 2 3 4 5 6 7

Very negative

Area of negative impact Area of positive impact

Neutral Very positive

Price-quality ratio

Technology

Adaptation to the needs of local demand

Design

Price competitiveness

The ‘Spain brand’2016

2018

9%

5%

4%11%

33%

31%

10%

12%

21%22% 19%

23%

Market diversification

Market with greater potential for growth/profitability than Spain

Growth to achieve global critical mass

Platform to develop activity in other markets

Better business environment in the destination market

More attractive labor market conditions

2016

2018

7%3%

4%8%

25%

27%

15%

16%

19%22% 28%

26%

30


SPAIN AS THE HEADQUARTERS OF INTERNATIONAL ACTIVITY

As in previous editions, we have analyzed the strengths and weaknesses of Spain as a destination for the investment and activities of foreign multina-tionals. In order to achieve this, subsidiaries have been consulted regarding the motives of their par-ent companies in deciding to locate their activities in Spain.

According to the multinationals surveyed, the size of the market and the existence of a qualified workforce represent the main strengths, followed by labor costs and geographical location. The importance of a qual-ified workforce as an element in attracting foreign investment increases in this edition, going from 22% to some 27%. This aspect is very important in terms of attracting investment with considerable added value (Figure 13).

Figure 13 Competitive strengths

of the Spanish economy, 2016 & 2018

N.B.: The percentages are calculated according to the number of respondents

who have chosen that option as one of the three most relevant.


Figure 14 Competitive difficulties

of the Spanish economy, 2016 & 2018




With regard to the size of the market and regula-tion, the business people interviewed also showed concern that the fragmentation of regulations and markets hinders Spanish and European business-es from growing and competing with those of other large markets, such as China or the United States.

Among the main competitive difficulties faced by Spain, the one most often pointed out is the political

context (21%). in keeping with concerns regarding recent events, followed by the regulatory framework. Bureaucracy and the workings of the domestic mar-ket also represent aspects that hinder investment. Worries regarding the macroeconomic environment have, however, fallen to their lowest ever point. In previous editions this was considered to be one of the main competitive hurdles faced by Spain (Figure 14).

Market size

Workforce qualifications

Labor costs

Geographical location

Infrastructure

Spanish language, quality of life and cultural proximity

2016

2018

8%6%

7%

13% 33%

31%

12%

12%

13%16% 22%

27%

Political context

Regulatory framework

Bureaucracy and workings of the domestic market

Tax framework

Institutional Quality

Macroeconomic context

Functioning of the labor market

Labor costs

Workforce qualifications

21%

19%

16%

11%

11%

9%

6%5%

2%

31

2. Market dynamism

Figure 15 Positioning of subsidiaries in Spain in comparison with other group subsidiaries


Figure 16 Measures that would make investment in Spain more attractive 2018


The evaluation of the positioning of Spanish subsid-iaries in comparison with other subsidiaries in the group as regards the quality of management and rel-evance to the parent companies has fallen slightly.

However, this remains at levels that are very positive, demonstrating the continued confidence of major multinationals in Spain (Figure 15).

In terms of measures that would make investment in Spain more attractive, the participating businesses have indicated (Figure 16):

• Tax incentives.

• Reductions in bureaucratic procedures.

• Improvements in the coordination of regional gov-ernment regulations, this being very much in line with the foregoing point.

In terms of market dynamism:

• The expectations for the growth of domestic de-mand have improved.

• Those relating to exports and overseas investment have tempered.

• There is concern regarding the political events in Catalonia and these are expected to have knock-on effects on the economy, above all the Catalan economy.

• Businesses continue to see Spain as an attractive destination for investment due to the size of its market and the level of qualification of the work-force.

• It is considered that the macroeconomic diffi-culties seen in other years have been overcome, however there are concerns regarding the politi-cal environment.

5.15.24.95.0

7

6

5

4

3

2

1

2016 2018

Positioning of the subsidiary Trend in relative weight

Tax incentives

Reductions in bureaucratic procedures

Improve coordination with regional government regu-

lations

Favor the consoli-dation of clusters

Promotion of the “Spain brand”

Other

Improve support to the trade offices in the country of origin

28%

26%

23%

10%

6%4%

3%

32


33

The Barometer considers basic resources to consist of those aspects of the business envi-ronment that are linked to physical infrastruc-

ture, education, innovative capacity and the use of new information technologies and communications (ITC).

The responses of business people to the 2018 Ba-rometer survey indicate that their evaluation of the quality of physical infrastructure in Spain is good (5.4 in a range from 1 to 7). Nevertheless, they give a poor score for education, in particular the quality of formal education (3.4) and proficiency in languag-es (2.8). They also consider the levels of innovation within businesses and the use of ITC to be relatively low (3.9 and 4.2 respectively) (Figure 17).

Figure 17 compares these values with the scores ob-tained for other countries in the Global Competitive-ness Report (WEF) and the World Competitiveness Yearbook (IMD). In addition to the values for Spain, the average for the OECD and those OECD countries with the best scores are shown. In the majority of cases, the evaluation for our country is clearly lower than the average for the OECD, with the exception of infrastructure quality.

In the case of evaluations regarding basic resources, these have not undergone any substantial change in comparison with previous editions of the Barometer (Figure 18).

3. Basic resources

Figure 17 Basic resources. Collected scores in the Barometer of the Círculos, 2018

N.B.: For each indicator a relative score is defined, from “1” (worst) to “7” (best).

Source: Barometer of the Círculos (2018), Global Competitiveness Report (WEF, 2017-2018) and World Competitiveness Yearbook (IMD, 2017).

Figure 18 Basic resources. Trend in the collected scores between the editions of 2014, 2016 and 2018


Source: Barometer of the Círculos, 2014, 2016 and 2018.

7

6

5

4

3

2

1

SWE

CHE

CHE

CHE

NDL

Country with highest score (WEF/IMD)OECD average (WEF/IMD)Spain (Barometer)

General quality of infrastructure

Learning capacity

Quality of formal educationDegree of use of ITC

Proficiency in languagesQuality of innovation in businesses


Learning capacity


Proficiency in languagesQuality of innovation in businesses

7

6

5

4

3

2

1

2018 2016 2014

34


In terms of the size of businesses, small firms gener-ally give lower scores than medium-sized business-es and major companies to aspects such as the use of ITC, the quality of innovation and learning capacity in their firms and marginally better scores in terms of the quality of formal education (Figure 19).

PHYSICAL INFRASTRUCTURE

The average score for the quality of infrastructure in Spain is 5.4 out of 7. This is slightly higher than the OECD average (5.2), although considerably lower than the highest scoring country, Switzerland (6.6). This area constitutes one of the highest scoring as-pects of the Spanish business environment, being an essential resource for major sectors of the Spanish economy, such as tourism, manufacturing and logis-tics.

Nevertheless, the business people interviewed also identified weaknesses regarding this aspect of the business environment, highlighting:

• High electricity prices, which impact on the com-petitiveness of the Spanish economy with respect to surrounding countries.

• The need to increase expenditure in the mainte-nance of existing transport infrastructure.

• The deficiencies in rail freight transport, primarily the need to improve rail connections with ports and develop the Mediterranean corridor for freight transport.

Business people are additionally concerned about the lack of transparency and economic criteria when making decisions regarding infrastructure invest-ment.

More specifically, when faced with the question as to which service needs to improve in terms of price, the highest percentage of respondents chose the energy sector (37%), indicating that the high price of energy represents a competitive disadvantage with respect to surrounding countries, impacting Spanish indus-trial policy (Figure 20).

With regard to the need to improve service quality, the respondents pointed out the telecommunications sector (23%), passenger transport (20%) and rail freight transport (19%). Lastly, concerning the need for greater investment, the rail freight transport sec-tor is considered to be a priority (23%) as is that of water infrastructure (21%).

The table “International good practice I”, describes the case of public-private partnerships for the provi-sion of rail access to the port of Amberes (Belgium). The experience of Israel is also presented (table “International good practice II”) as an international benchmark in terms of water management.

Previous editions of the Barometer showed interna-tional good practice in institutional quality regard-ing the planning and regulation of infrastructure in France and the UK and identified the port of Ham-burg (Germany) as an example of intermodal con-nection between rail and port infrastructure.

Figure 19 Basic resources.

Collected scores by size of company, 2018



Learning capacity



Proficiency in languagesQuality of innovation in busi-nesses

7

6

5

4

3

2

1

Small businesses (1-49) Medium-sized businesses (50-249) Major corporations

35

3. Basic resources

International Good Practice I

Belgium. Public-private rail infrastructure investment at the port of Amberes


Source: Benefit4transport. Case Studies: Liefkenshoekspoorverbinding Liefkenshoek Rail Link.

International Good Practice II

Israel. Water management


Source: OECD Observer No 302, April 2015.

The Port of Amberes, one of the largest in Europe, handles more than 250 freight trains per day. This represents some 10% of the port’s traffic and a target of 15% of the total has been set for 2030. In order to achieve this, there has been a drive to improve rail access to the port by means of a mixed capital project, the Liefkenshoek Rail Link.

The Liefkenshoek Rail Link is the largest Public-Private Partnership (PPP) project in Belgium. It consists of a rail connection with various kilometres of tunnels connecting the port with its hinterland, cutting more than 22 kilometres from the journey and 40 minutes connection time.

The project is structured as a design, build, financing and maintenance contract. The licensor authority is the public company charged with the construction and maintenance of the rail network, Infrabel, the licensee consisting of a consortium of private businesses funded by Belgian, Dutch and French capital - Locorail SV. The total investment amounts to €873m (2010 prices), of which 690 were financed by Locorail and the remainder (€183m) through public debt.

The main reasons for structuring the investment through a PPP consisted of public deficit control, im-provements to the overall specifications of the project, transparency and efficiency, compliance with lead times and budgets and a reduction in the risk to the public sector (design, build, financing and mainte-nance).

The water requirements of Israel exceed the naturally available supply within the country. Nevertheless, the country has achieved a sustainable average annual consumption by means of a series of measures, the majority of which are related to innovation. The Israel NewTech Programme has made the country a leader and global exporter of water management technology by means of investment in human capital, R&D, marketing and entrepreneurship.

Some of the elements that have produced this successful water management strategy include:

• A water transport network throughout the country developed during the 50s and 60s.

• Treatment and re-use of practically all wastewater for agricultural irrigation.

• Irrigation systems using advanced technology, such as direct automatic irrigation by humidification of the plant roots.

• Development of new plant varieties that can achieve yields that are 10 times greater with the same level of water consumption.

Figure 20 Needs for improvements in prices, services and investment in infrastructure, 2018



37%

5%

15%13%

12%

10%

8%

23%

10%

4% 10%

20% 11%13%12%

13%23%

19%21%

8%

13%

Improved prices Improved service Greater investment

Energy infrastructure

Telecommunications infrastructure

Passengertransportinfrastructure

Maritime freight transport infrastructure

Road freight transport infrastructure

Rail freight transport infrastructure

Water infrastructure

36


ment by businesses to the definition of content and programs. Such advances would help to attenuate the excessive leanings toward theory of the Spanish education system. Enrolment in vocational training in Spain has grown by some 71.6% since 2007/2008, reaching the figure of 800,000 students. In the case of dual vocational training, the number of young people enrolled has increased by some 457% since 2012 (from 4,292 to 23,919). The number of training institutes has likewise increased (from 173 to 894) as have the businesses committed to this area of training (from 517 to 9,916) Nevertheless, the penetration of dual vocational training amounts to just 3% of enrolled students, compared with 60% in Germany.

Greater deployment of vocational training could contribute to adapting training to the real needs of businesses and improving the problem of unem-ployment, particularly youth unemployment. Spain is one of the OECD countries suffering most from a mismatch of skills for the post of employment. To a great extent, this is caused by over-qualification (Figure 22).

The measures highlighted by business people as being considered most appropriate to improve the quality of training and employability in Spain include:

• The need to drive proficiency in languages (19%).

EDUCATION

The 2018 Barometer continues to identify defects in our education system. The capacity for learning with-in the workplace scores well (4.3 out of 7), though has fallen slightly when compared with 2016. Nev-ertheless, there are clear competitive disadvantages in terms of the quality of formal education (3.4 out of 7) and proficiency in languages (2.8 out of 7). Al-though both aspects have improved in recent years, Spain remains below the average for the OECD and far below the countries scoring best this year, i.e. Switzerland and the Netherlands.

The disadvantage of our education system is shown at all levels, with performance below the OECD av-erage in primary, secondary and tertiary education (Figure 21). The gap in ever more sought-after sub-jects such as science and mathematics is also sig-nificant, as is the case with dual vocational training.

The business people interviewed consistently showed concern at the lack of deployment of voca-tional training, particularly dual vocational training. They considered it necessary to achieve greater recognition and visibility of this type of training on the part of society and a greater degree of commit-

• Development of boring systems that can reach down to 1,500 metres and pump more than 50 metres.

• Use of algae to control recycled water.

• Water loss reduction and control systems.

As a consequence, around half of the water supply of Israel consists of reused wastewater, as well as desalinated water, in which it is a world leader. The agricultural sector is also a world leader in water conservation and efficiency, achieving the highest level of production per cubic metre of water and main-taining the export of 80% of production.

Figure 21 Comparative evaluation

of education at various levels in

Spain according to international indices

Source: Developed in-house with data from the Global Competitiveness Report

(World Economic Forum, 2017-2018) and World Competitiveness Yearbook

(IMD, 2017).

4.2 4.13.7

3.4

6.76.2 6.2 6.3

4.9 4.84.4

4.0

8

7

6

5

4

3

2

1

0

Primary

Spain OECD Top country

Sciences and mathematics Secondary and tertiary Dual vocational training

FinlandFinland Switzerland Switzerland

37

3. Basic resources

Figure 23 Most significant measures to improve the quality of training and employability in Spain

N.B.: The percentages are calculated according to the number of respondents who have chosen that option as one of the most relevant measures.


Figure 22 Skills mismatch in the post of employment (% of employees)

Source: Going for Growth 2017, OECD.

• Increase the participation of businesses in voca-tional training (17%).

• Foster the values of entrepreneurship, starting at primary school (15%).

• Adapt the offering of qualifications to the market (13%).

It is also considered important to improve the quality of the teaching profession and strengthen both digi-tal skills and so-called soft skills.

For their part, the business people interviewed qual-ified a number of these considerations. In particular, they highlight the fact that progress in language pro-ficiency has been made in recent years, especially with respect to new generations. The businesses interviewed did, however, state that they did not face any problems in finding talent, although they are looking for efforts to retain this in Spain.

In order to increase the participation of businesses in vocational training and adapt the range of qualifica-tions on offer, the example of the UK may be followed in Spain, as may be the Spanish case of the ‘Alianza para la Formación Profesional Dual’, which is includ-ed as one of the Good Business Practices.

Previous editions of the Barometer of the Círculos presented the cases of Mexico, with the adaptation of qualifications to the market, Switzerland and Ger-many, with dual vocational training systems, Swit-zerland, with teaching programmes at University, the Netherlands, by virtue of its language proficiency, Finland, for the quality of the teaching profession and Denmark, due to the matching of skills (see Appendix 3). As examples of good business practice, they also showed the actions of Seat and Bankia in dual voca-tional training (Appendix 4).

35

30

25

20

15

10

5

0

Po

land

Can

ada

Bel

giu

m

Sw

eden

US

A

Fra

nce

Net

herl

and

s

Den

mar

k

Jap

an

Fin

land

Est

oni

a

So

uth

Ko

rea

OE

CD

UK

No

rway

Slo

vaki

a

Aus

tral

ia

Ger

man

y

Aus

tria

Irel

and

Cze

ch R

e-

pub

lic

Sp

ain

Ital

y

Training in excess of requirements

Training inferior to requirements

19%

13% 15%

17%12%

9%

8%4%

3% Improve language pro-ficiency

Increase the participation of businesses in vocational training

Foster the values of entrepreneurship, starting at primary school.

Improve the quality of the teaching profession

Adapt the offering of qualifi-cations to the labor market.

Strengthen digital and soft skills

Homogenize educational content at a national level

Increase public spending on education

Strengthen continuing education for adults

38


Government network of businesses, centers and institutions promoted by the Bertelsmann and Princ-esa de Girona foundations alongside the employers associations CEOE and Cepyme and the Spanish Chamber of Commerce (http://www.alianzafpdual. es/). Participating companies include: Gas Natural, Deloitte, Acciona, Agbar, Bosch, Frit Ravich, La Caixa, Mercedes-Benz Spain, Nestlé, Repsol, Seat, Sol Meliá, Siemens…

Mission: to establish dual vocational training among Spanish business by means of their value chains. To improve the employability of young people and enable businesses to acquire professionals with training suitable for their needs. The aspiration is to bring together the best initiatives and experiences that are being undertaken, create feedback loops and extend these to other businesses, centers and institutions in Spain.

Financed by the businesses themselves and the educational system.

4 more specific objectives and strategies for the expansion of dual vocational training in Spain:

• Build a model of quality dual vocational training.

• Implicate small and medium-sized enterprises in dual vocational training.

• Improve the existing legal framework.

• Increase the social prestige of vocational training, and more specifically that of dual vocational training.

INNOVATION

In terms of innovation, the 2018 Barometer also identifies disadvantages faced by Spain in the quality of innovation in businesses (3.9 out of 7) and the de-gree of use of ITC (4.2 out of 7). The values achieved for these are below the OECD average and far below those of the the leading countries, these being Swit-zerland and Sweden respectively.

These results are in line with the Innovation Score-board of the European Commission, which shows that, as in the case of last year, Spain does not find itself among the countries that are “leaders in inno-vation” (Sweden, Finland, Denmark, the Netherlands, Germany and the UK) or among the “strong inno-vators” (such as Austria, France, Ireland and Bel-

gium). In contrast, it finds itself within the group of “moderate innovators”, alongside Portugal and Italy, occupying the 21st position among the 36 countries appraised.

In line with the 2016 edition, the businesses sur-veyed indicate the following in terms of the main public measures needed to improve the innovative capacity of companies:

• Incentivize University-business collaboration in research.

• Provide tax incentives for R&D.

• Promote public-private co-financing programs.

Good Business Practice I

Alliance for dual vocational training

Source: Círculo de Empresarios

International Good Practice III June 2016

UK. Participation of businesses in

the definition of the content of vocational

training

Source: Employer ownership of skills, UK Commission for Employment and

Skills,

Tackling unemployment whilst addressing skill mismatch. Lessons

from policy and practice in European Union countries. Publications Office of

the European Union 2015

In the UK, a program was carried out to include the participation of businesses in the definition of the content of vocational training. The aim of this was reduce the mismatch in skills between the requirements of businesses and the training provided.

A key element of this initiative is collaboration between the public sector, which provides part of the financing, the legal framework and general management, and the private sector, providing content and part of the financing.

Businesses interested in obtaining support are required to prove a skills mismatch in their area, propose the design of a program with cost estimates and contribute specific suggestions for the proposed training programme, specifying what their contribution would be. Having received the proposals from businesses, a candidate selection process was carried out, establishing collaborative agreements within eight sectors: aerospace, automotive, creative industries, energy, nuclear, science, technology and construction.

In addition, incentives were designed in order that companies could focus not only on the workforce in their region, but also on unemployed youths and students at risk of dropping out.

The institution responsible for the program was an industrial organisation, the UK Commission for Employ-ment and Skills (UKCES), in which the Ministry for Business Innovation participated.

39

3. Basic resources

Figure 25 Most pertinent public measures to improve the innovative capacities of Spanish businesses



More specifically, measures to drive private initia-tives and enable collaboration between businesses and other institutions are sought, rather than public investment in R&D.

For their part, the businesses interviewed indicate the difficulty and length of time in obtaining tax ben-efits for R&D in Spain due to the fact that, in some cases, innovation is generated by pathways that are dissimilar to research and, in others, because the entities defining the concept of research for tax pur-poses are not specialists in R&D. As a result, they are asking for greater flexibility and speed on the part of the Public Administration in this area.

The business persons interviewed indicated the dif-ficulty that often exists when collaborating with uni-versities, due to the length of administrative proce-dures and the lack of incentives linked to the careers of researchers. In addition, the large companies

interviewed acknowledged their responsibility in the generation and promotion of innovation ecosystems.

The companies interviewed state that their business models have been clearly impacted by digital trans-formation, giving this impact a score of 5.5 out of 7. This is slightly higher than the score in the previ-ous edition (5.2) and they acknowledge the need to adapt to this transformation.

Among the main measures in order to achieve adap-tation to digital transformation, it is considered nec-essary to promote training in digital skills throughout all phases of the education system, as well as pro-mote STEM degrees (Sciences, Technology, Engi-neering and Mathematics). In fact, the businesses interviewed acknowledge some difficulties in finding digital talent within the labor market, particularly in the case of small and medium-sized enterprises (Figure 26).

Figure 24 Innovation positioning of countries according to the Innovation Scoreboard 2018

Source: Innovation Scoreboard 2018, European Commission.

Strong Innovator

Innovation Leader

Moderate Innovator

Modest Innovator

incentivize University-business collaboration in research

Tax incentives for R&D

2016

2018

Public-private co-financing programs for research

Improve the financing of grants and employment contracts for researchers

Increase public spending on basic R&D

Concentration of public support to research applied to some specific sectors

13%

9%

11%

12%

22%

23%

13% 13%

18%

19%

24%

23%

40


With the aim of covering the market’s needs in terms of technical skills, various initiatives have been de-veloped in the Netherlands in recent years. These were not interlinked and had not achieved the desired impact. As a result, the Technology Pact 2020 was designed, with a wider, more comprehensive vision agreed between 60 participants at all levels in the education sector: businesses, trade unions, central and regional government, as well as representatives of key sectors of the economy.

The Technology Pact acts along three basic lines:

• Achieve a greater number of students choosing technology education.

• Achieve greater access by students with a technical education to work in the technology sector.

• Retain workers with technical qualifications in the technology sector and seek out alternative work for people with a technical profile who are at risk of losing their post.

In order to achieve this, the following measures have been developed:

• Putting science and technology in the curriculum of the 7,000 primary schools in the Netherlands before 2020.

• Assigning 100 million Euro for more science teachers in secondary education and providing training for teachers in technology areas (since 2014, technology has been a mandatory subject in teacher training).

It is also considered necessary to introduce digital technology in all aspects of business operations, especially providing support the small and medi-um-sized enterprises. Other measures proposed include investment in technology infrastructure and incentives for innovation and entrepreneurship.

The businesses interviewed also pointed towards the need for technology disruptors to operate on the same playing field as other businesses in the sec-tor from the regulatory point of view, something that does not always occur in practice.

All of these proposals entail comprehensive change that some countries have already embraced. Within

this context, the case of the digital transformation strategy of Sweden is presented as an internation-al benchmark, as is the Technology Pact proposed in the Netherlands. The case of Switzerland is also included as an example of how to attract research talent, an aspect in which Spain achieves scores far below the OECD average in international competi-tiveness reports.

The experiences of France were shown in previous editions, particularly their support for private invest-ment in R&D. In addition, Finland was highlighted as an example of digitalisation (Appendix 3).

International Good Practice IV

Netherlands. The Technology Pact

Sources: Summary, Dutch Technology Pact 2020. Invest in Holland

European Union STEM Coalition

Skills for a digital world, OECD, May 2015.

Figure 26 Necessary measures to

improve adaptation to digital transformation

in Spain


who have chosen that option as one of the most relevant measures.


19%

14% 14%

15%

12%

9%

7%

5%5%

Promote training in digital skills throughout all phases of the educational system, as well as STEM degrees

Introduce digital technologies in business processes and relationships with clients and suppliers

Particularly support small and medium-sized enterprises in the adoption of digital technologies

Invest in technology infrastructure and promote its use

Invest in cybersecurity

Incentivize innovation and entrepreneurship

Encourage digital public services

Develop “smart” regulations that defend competition, avoid tax and regulatory

asymmetry and protect consumers

Develop tools for the promotion of the “data economy”

41

3. Basic resources

International Good Practice V

Sweden. Digital Transformation Strategy

Source: Digital Policy 2017. Government Offices of Sweden

Summary of broadband development in Sweden. European Commission

A completely connected Sweden by 2015. Government Offices of Sweden, 2016

International Good Practice VI

Switzerland. Attraction of research talent

Source: Organization of Science and Research in Switzerland.

Switzerland´s international strategy for education, research and innovation. Swiss confederation, 2010.

In May 2017, the Swedish government presented a digital strategy aimed at improving competitiveness and achieving full employment and sustainable development.

A Digitalisation Council under the tutelage of the Swedish Post and Telecom Authority has been created at an institutional level in order to aid in the deployment of digital transformation. A coordinating group has also been formed in the Department of State with this goal in mind.

The digital strategy is based on five pillars:

• Development of digital skills (changes in education, public sector employment).

• Digital security (digital identity, privacy).

• Development of digital innovation (data driven innovation, intellectual property protection).

• Governance (simplification through digital transformation, access to public services).

• Infrastructure (broadband).

A national broadband plan has been implemented for the development of infrastructure, the aim being to provide, by 2025, a minimum bandwidth of 1Gbps to 98% of households and businesses and 100 Mbps to the remaining 2%. There is also an aim to provide high-speed mobile coverage to the entire country by 2023.

The government has created the Broadband Forum, which acts as a national center of competence in the development of the infrastructure and enables cooperation with businesses and other organisations to identify obstacles and find solutions.

According to the World Economic Forum, Switzerland is the leading country in the world in terms of attracting and retaining talent, as well as regards the quality of its research institutions and collaboration in research and development between universities and businesses. International talent forms the basis of its research excellence.

Approximately 20% of all federal resources for education, research and innovation in Switzerland are assigned to activities involving international cooperation.

The federal government is also involved in various international research organisations in order to foster international research collaboration. In 1953 it supported the creation of CERN – the European Council for Nuclear Research. Located in Geneva, it employs 2,500 people and houses 12,000 scientists from 70 countries.

The two federal technology institutes, Zurich and Lausanne, are internationally renowned for their re-search results and scientific output. They likewise have a long tradition of attracting international research talent, some 50% of the teaching staff being foreigners.

Switzerland likewise encourages the movement of its researchers abroad. Financed by the government, the Swiss National Science Foundation has the international integration of the Swiss research community as one of its goals. Within this context and since its foundation in 1952, it has enabled 20,000 Swiss researchers to carry out periods of research abroad. In turn, it encourages the attraction of international research talent and forms part of many programs with this aim, such as SCOPES (Scientific Cooperation with Eastern Europe) and the Scientific Exchange program. The foundation has an annual budget of ap-proximately 800 million Euro.

• Activating an education portal organized by the business world, in which primary and secondary teach-ers can find support on technology teaching. This can also be used by young people studying tech-nology in order to find placements. The portal also helps vocational training colleges to find specialist teachers in certain subject areas coming from industry and schools to find placements for their science teachers.

42


43

The Spanish labor market continues to display significant imbalances. The main one of these is the unemployment. Although this has con-

tinued to fall, the level remains high (16.7%) and is almost double that of the the Eurozone, particular-ly worrying being the rate of youth unemployment (35%). In turn, the percentage of temporary con-tracts (26.8%) is one of the highest in the OECD and exceeds the European average by 12.5 percentage points (14.3%). This dichotomy has negative effects on geographical mobility, the attraction and training

of talent, salary increases, innovation and productiv-ity. The latter of these is below the leading European countries and approximately some 10% lower than the productivity rate for the Eurozone (Figure 27). In addition, in terms of total factor productivity (TFP), there has been no progress recorded since 2008, whereas the OECD has grown annually by 0.2% on average. Given the absence of significant improve-ments in the assignment of the resources used in the production process, this has direct negative effects on the growth of per capita income levels.

4. Labor market

Figure 27 Labor productivity. Comparison of Spain with the Eurozone and selected countries, 2000-2017 (GDP/hour worked, $)

Source: Círculo de Empresarios, based on OECD 2018.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Germany Sweden Spain Eurozone

65

60

55

50

45

40

44


The 2018 Barometer continues to collect negative evaluations on the part of business people of the general efficiency of the labor market, below the OECD average and that of the leading country, Swit-zerland. The degree of satisfaction with the contribu-tion of social stakeholders (2.9) and with geographi-cal mobility (2.7) is also low. Although the evaluation of the availability of qualified labor is scored more favorably (3.8), this has fallen slightly in comparison with 2016. The cost of qualified labor is the only as-

pect of the labor market that exceeds a score of 4 (4.5).

With respect to the 2016 edition, perceptions re-garding the labor market are fairly similar, with the exception that the availability of qualified labor has fallen. If we look at differences with regard to 2014, all aspects have improved other than general effi-ciency and the availability of qualified labor (Figure 29).

Figure 28 Labor market.

Collected scores in the Barometer of the

Círculos, 2018


Source: Barometer of the Círculos (2018), Global Competitiveness

Report (WEF, 2017-2018) and World Competitiveness Yearbook (IMD, 2017).

Figure 29 Labor market. Trend in

the collected scores between the editions of

2014, 2016 and 2018



The business people interviewed consider that the 2012 labor reform has had a positive impact on the labor market, although additional measures are needed, particularly to correct the dichotomy within the market. In addition, they recognize the construc-tive role of trades unions during the crisis, in particu-lar that of workplace committees.

It is possible to observe some small differences ac-cording to the size of business, small businesses giving lower scores in almost all aspects considered (Figure 30). This difference is particularly evident in the availability of qualified labor, business people identifying access to talent as one of the difficulties faced by small and medium-sized enterprises in terms of growing, internationalizing and innovating.

7

6

5

4

3

2

1

CHE

CHE

NOR


General efficiency

Functional mobility within the business

Availability of quali-fied labor

Contribution of company stakeholders

Cost of quali-fied labor

Geographical mobility

7

6

5

4

3

2

1

General efficiency


Availability of quali-fied labor

Contribution of company stakeholders



2018 2016 2014

45

4. Labor market

Among the reforms necessary to improve the labor market situation, a greater link between productivity and salary costs remains notable, now with greater weight than in the 2016 edition (27%). Particularly pertinent and gaining in importance are improve-ments in workplace training and incentives to hiring (17%), along with the simplification of contractual models (15%). However, the priority given to reduc-tions in social security contributions has waned. In general terms, a desire to place greater emphasis on active employment policies is noted.

The 2018 Barometer also covered the management of human resources in businesses. Figure 32 shows the programs that have most successfully been de-ployed in businesses according to the respondents.

The results show the lack of establishment of pro-grams relating to dual vocational training (4%) and youth employment (2%).

Programs aimed at improving work-life balance and promoting equal opportunities in professional de-velopment are the most fully deployed, at 21% and 20% respectively. As shown in Figure 33, Spain is

still behind the leading countries in aspects such as the participation of women in management posts and the gap in salaries.

In this edition, we present examples of good practice that may serve as a benchmark in resolving some of the problems identified. Accordingly, we propose the measures adopted by Iceland and France and, from the business point of view, that of Leche Pascual, aimed at improving work-life balance, birthrates and gender equality. We likewise highlight Nestlé, foster-ing the generation of youth employment.

In previous editions of the Barometer of the Círcu-los, the cases of Denmark, the UK and Belgium were presented as examples of active employment pol-icies, the Netherlands, owing to its system of part-time working, Germany, due to the decentralisation of salary negotiation, the UK and the Netherlands, for the graduation of minimum wages, Sweden and Denmark, as a result of their worker-employer rela-tionships and Austria and the Netherlands, for their youth employment programs. The cases of AECOC and Telefónica were also put forward as examples of business best practice (Appendices 3 and 4).

Figure 30 Labor market. Collected scores by size of company, 2018



Figure 31The most pertinent reforms to improve the situation in the labor market in Spain



Improve the potential for linking salaries and productivity

Improve workplace training and hiring incen-tives (active policies)

2016

2018

Simplification of contractual models

Reduction of dismissal costs

Reduction of social security contributions

Reformulate access to and conditions regarding employment benefits (passive policies)

Limit the influence of social stakeholders

Reduce the potential scope for. Interpretation of the courts regarding labor regulations

10%

5%6%

4%7%

13%

24%

27%

10%

16%

10%

15%

10%

13%

17%13%

7

6

5

4

3

2

1

General efficiency


Availability of qualified labor

Contribution of company

stakeholders



Small businesses (1-49)

Medium-sized businesses (50-249)

Major corporations

46


Figure 32 Human resource

actions deployed with greatest success in

businesses




Figure 33 Ranking of Spain (out

of 144 countries) in specific aspects of the

Global Gender Gap Report 2017

Source: Global Gender Gap Report 2017, World Economic Forum.

Iceland is the leading country in labor equality between men and women according to the Gender Gap Report 2017 of the World Economic Forum. A fully egalitarian education system and various measures have contributed to this result.

Some of these measures include:

• Parental leave of nine months, of which three are for the father, three for the mother and three can be chosen freely between the parents. The three months assigned to the father are not transferable to the mother. 90% of fathers use this leave. In addition, studies have shown that following three months of maternity leave fathers remain more committed, favoring the return to working life of women with the same timetable and conditions as before.

• The government provides substantial assistance in the form of nursery subsidies. In fact, among the OECD countries, Iceland has the greatest public expenditure as a proportion of GDP on nurseries, the care and education of babies and children up to 5 years of age (1.8%). This is more than double the OECD average and three times more than Spain.

• The Gender Equality Act 10/2008 also stipulates that companies must take appropriate measures to favor a work-life balance for men and women and contemplates three different flexitime measures.

Consequently, the female working population in Iceland amounts to 80% of women. More than 40% of members of Parliament are women and the salary gap between men and women is one of the narrowest in the world.

International Good Practice VII

Iceland. Training in work-life balance and gender equality

Source: Gender equality in Iceland. Center for Gender Equality, Iceland.

March 2017

Country report. Gender equality. Iceland 2017. European Commission.

The current situation of gender equality in Iceland- Country profile. European

Commission. 2013, last updated November 2016.

Economic participation and opportunities 81

Equal pay for equal work 122

Directives, legislative branch, senior civil servants 68

Technical and professional workers 67

2%4%5%

9%

10%

12%

17%

20%

21%

Work-life balance

Equality of opportunity in professional development

Workplace training programs and professional development

Intra-entrepreneurship

Digital enablement

Worker participation in decision-making

Social benefits (health insurance, pension plans,

other)

Youth employment programs

Dual training

47

4. Labor market

International Good Practice VIII

France. Tax measures to raise the birthrate and improve worklife balance

Source: Family database, OECD. 2017.

Sustainable Governance Indicators, France 2017.

The current situation of gender equality in Iceland- Country profile. European Commission. 2013, last updated November 2016.

Good Business Practice II

Leche Pascual. Work-life balance

Source: Círculo de Empresarios, 2018.

Good Business Practice III

Nestlé Youth employment


France has implemented a series of public policies relating to families that have favored an increase in the birth rate and a better work-life balance.

Public spending in France on family benefits (3.65% of GDP) is one of the highest in Europe, exceeded solely by the UK and Denmark, and is much higher than that of Spain (1.46%), including in terms of subsidies for nurseries. As a proportion of GDP, France places fourth within the OECD in terms of public spending on nurseries, care and education of babies up to 5 years (1.3%), exceeded solely by Iceland, Sweden and Denmark.

Nevertheless, whereas in Scandinavian countries family assistance is focused on direct payments and public expenditure on services, in France a significant part (0.74% of GDP) is performed by means of the tax system.

• For example, rather than taxes being paid individually, they are paid by the family unit, dividing the total income by the number of persons in the family (in accordance with a calculation system according to the number of children). This benefits families with more children.

• Those families who use support in childcare have a right to a tax deduction of 50% of this cost up to a maximum of €12,000 expenditure.

• The costs arising from the care of children up to 7 years of age out of the household give a right of tax credit of 50%, up to a maximum of €2,300 per child.

In 2008, the Leche Pascual group obtained the certificate of ‘Family Conscious Company’ as a result of its work-life balance measures. The most important:

• Flexible working timetable.

• Extension of maternity leave by one week, set by law at 16 weeks and that Leche Pascual has extended to 17.

• Maintenance of private medical insurance covering all employees of the company in the event that a sabbatical is requested for legal guardianship over one or two years.

• Maintenance of the same salary during maternity or paternity leave as though the employees were working.

They have obtained the ‘Equality in Business’ seal of the Ministry of Health, Social Services and Equality. This rewards clarity and rigor in the design of equality policies in the company and the measures that have been deployed in order to eliminate and prevent discrimination between sexes.

In 2013 the company began the European Youth Employment Initiative - Nestlé needs YOUth ( 20,000 employment opportunities for young Europeans over 3 years, 1,250 in Spain).

In 2017 the Global Youth Initiative: Nestlé needs YOUth established a new goal - that of helping 10 million young people throughout the world to access employment and economic development opportunities from now until 2030.

In order to achieve this, the scope is more extensive. Rather than being focused solely on employability, support is provided to farmers and young businesspeople throughout the supply chain.

This also corroborates their commitment to young people by being one of the first companies to join the Global Initiative on Decent Jobs for Youth.

Nestlé Spain is committed to promoting 1,400 new employment opportunities and training for young people between 2017 and 2020. This figure is added to the more than 1,600 people of less than 30 years of age who benefited from the initiative between 2014 and 2016.

48


49

In the 2018 Barometer, the trend towards an im-proving evaluation of the Spanish financial market continues. Access to credit and trends in terms

of credit over the last 12 months have scored well, at 4.6 and 5.1 respectively. Nevertheless, scores continue to be low in terms of traditional structural weaknesses, consisting principally of difficulties in accessing the capital markets (4.1) and breach of

supplier payments time frames, both on the part of

businesses (3.7) and, above all, of the Public Admin-

istration (2.9) (Figure 34). Both access to credit and

to the capital markets achieve scores very similar to

the OECD average, although substantially below the

best performing countries, New Zealand (5.7) and

USA (5.7) respectively.

5. Financial market

Figure 34 Financial market. Collected scores in the Barometer of the Círculos, 2018


Source: Barometer of the Círculos, 2018, Global Competitiveness Report (World Economic Forum 2017-2018) and World Competitiveness Yearbook (IMD), 2017.

7

6

5

4

3

2

1

USA

NZL



Access to creditCompliance with payment terms (companies)

Trend in credit (last 12 months)

Compliance with payment terms ( Public Administration)

50


The scores are similar to those collected in 2016, with a slight improvement in terms of access to credit (Figure 35).

The score regarding access to the financial markets falls in line with the size of the responding business, the lowest evaluation being seen in the case of small businesses (Figure 36).

Figure 35 Financial market. Trend in the collected scores

between the editions of 2014, 2016 and 2018



Figure 36 Financial market.




In terms of the form of financing, over the last 12 months the percentage of companies using bank financing (25.6%) or short-term financing (20.9%) was relatively similar to that of those who employed equity (26.1%). These percentages are similar for the sources of financing anticipated over the coming 12 months (Figure 37).

In the opinion of business people, the two main prob-lems that affect financial markets (Figure 38) consist of the structural weakness of alternative sources of financing (30% of the respondents) and the failure to comply with payment terms (20%). Bank regulation (16%) and the weight of low quality assets on bank balance sheets (16%) take second place.

With respect to the degree of compliance with pay-ment terms, small and medium-sized enterprises received the best score (3.9 out of 7), with local and regional government occupying the opposite extreme (2.9) (Figure 39).

As in previous editions of the Barometer, Spain is one of the European countries where businesses suffer the longest average payment terms, these be-ing 55 for payments between businesses and 78 for payments from the Administration (according to the “European payment report, 2017” of Intrum Justitia (Figure 40). It is important to point out that these scores for Spain have fallen in comparison with 2016, where average time periods amounted to 69 and 98 days respectively.

In previous editions of the Barometer, the good prac-tices in Germany and the UK in in respect of payment terms on the part of large corporations and the Pub-lic Administration, and the experience of France in enabling the financing of small and medium-sized enterprises in France (incentives to participate in the capital markets, Alternext; the bank loan fund NOVO, the private securities market Euro PP and the credit valuation system of the Bank of France) and of Germany (the bilateral loans, privately placed of Schuldschein).

7

6

5

4

3

2

1


Access to creditCompliance with payment terms

(companies)


Compliance with payment terms

(Public Administration)

2018

2016

2014

7

6

5

4

3

2

1



Major corporations


Access to creditCompliance with payment terms

(companies)


Compliance with payment terms

(Public Administration)

51

5. Financial market

Figure 37 Sources of financing used by companies


Figure 38 Principal problems affecting the Spanish financial market



Figure 39 Level of compliance with maximum payment deadlines

N.B.: For each indicator a relative score is defined, from “1” (breaches in general) to “7” (compliance in general).


28.1%26.9%

25.3%

19.7%

10.0%

7.2%

4.8%3.8%

1.4% 1.0%

25.6%

20.9%

9.8%

7.3%

3.9%2.5%

1.0% 0.9%

Last 12 months

Next 12 months

Procu

rem

ent o

f cap

ital/f

unds/

self-

finan

cing

Long

-term

ban

k fina

ncing

Short-

term

finan

cing (t

rade d

iscoun

t or s

imila

r)

Supplie

r fina

ncing

Financ

ing th

roug

h th

e par

ent c

ompan

y

Issue

s in

domes

tic o

r fore

ign deb

t mar

kets

Vent

ure c

apita

l fina

ncing

Debt f

unds

Financ

ing fr

om o

ther

bus

iness

es in

the v

alue c

hain

8%

10%

16%

16%20%

30% Structural weakness of sources of financing that are alternatives to bank financing

Excessive payment and collection time frames

Regulatory requirements (capital ratios)

Weight of low quality assets

(Non Performing Loans)

Strong competition from the public sector to cover their

funding requirements

Low solvency demand

3.92

3.58

2.92

2.86

3.04

1 2 3 4 5 6 7

Small businesses

Major corporations

Local public administration

Regional public administration

Central government

52


Figure 40 Average payment time

in Europe, 2017

Source: Intrum Justitia, 2018, “European payment report, 2017”.

78

55

1923

2629 29

46

57

52

95

63

103

66

95

22

120

100

80

60

40

20

0

Companies Public Administrations

Spain Greece PortugalItalyFranceScandinavi-an Countries

UKGermany

53

5. Financial market

54


55

This chapter includes aspects in the public and private sphere that affect the proper workings and competitive vitality of the markets:

• The degree of competitiveness in sectors.

• The functioning of competition supervision.

• Regulatory barriers.

• The level of entrepreneurship.

• The contribution of small and medium-sized en-terprises and their capacity for growth.

Business people give highly positive scores, at levels similar to or exceeding those of the OECD, to compe-tition in sectors (5.6), the relationship between effi-ciency and growth (5), to the adaptation of business-es (4.9) and the contribution of entrepreneurship to development (4.3) (Figure 41).

Nevertheless, the scores are slightly lower in terms of competition supervision (3.8) and the contribution of small and medium-sized enterprises to dynamism (3.5). In this case, the perception of business people is far removed from the OECD average. Lastly, the aspect receiving the poorest score is that of regu-

6. Business dynamism

Figure 41 Business dynamism. Collected scores in the Barometer of the Círculos, 2018


7

6

5

4

3

2

1

IRL

FIN

JPN

AUT

CHE

CHE

Country with highest scoreOECD averageSpain (Barometer)

Contribution of entrepreneurship to development

Regulatory barriers and bureaucracyCompetition in their sector

Contribution of small and medium-sized en-terprises to dynamism

Adaptation of businesses

Relationship between efficiency and company

growth

Competition supervi-sion

56


latory barriers and bureaucracy (3.2). This coincides with the Global Competitiveness Report 2017-18 (WEF), in that bureaucracy appears as the main problem when doing business here, Spain occupying the 113th position out of 137 countries in terms of the weight of regulations and administrative proce-dures.

Few changes are noted with respect to the 2016 edition (Figure 42). Since 2014, improvements in the contribution of entrepreneurship to development and in bureaucracy are appreciable and a fall in the scores for the contribution of small and medi-um-sized enterprises to business dynamism and the relationship between efficiency and company growth is noted.

Figure 42 Business dynamism.

Trend in the collected scores between the

editions of 2014, 2016 and 2018



Figure 43 Business dynamism. Collected scores by

size of company, 2018



In terms of the size of businesses, small businesses give slightly lower scores than large companies to all aspects analysed, except for the contribution of entrepreneurship to development. The evaluations of medium-sized businesses are closer to those of small businesses, except regarding the relation-ship between growth and efficiency and capacity to adapt, where there opinions are more similar to those of large companies (Figure 43).

Regulatory barriers continue to appear among the main reasons impeding greater entrepreneurship in Spain, however other cultural aspects and education, such as the lack of social awareness of business people, the absence of training regarding business

culture and fear of failure are noted, coinciding with 2016 edition (Figure 44).

The respondents considered that there are still numerous barriers that impede the growth of com-panies and this represents a key element for the Spanish economy. The composition and evolution of the average size of business structures. In 2017, some 94.8% of Spanish businesses consisted of micro-enterprises. This percentage has increased in comparison with 2008 at the cost of small and medium-sized enterprises, the percentage of these falling to 4.44% and 0.6% respectively. The percent-age of large corporations remains steady at 0.12%, far removed from the figures for Germany or the UK (Figure 45).

7

6

5

4

3

2

1



Contribution of small and medi-um-sized enterprises to dynamismAdaptation of businesses

Relationship between efficiency and company growth

Competition supervision

Small businesses (1-49) Medium-sized businesses (50-249) Major corporations

7

6

5

4

3

2

1



Contribution of small and medi-um-sized enterprises to dynamism

Adaptation of businesses

Relationship between efficiency and company

growth

Competition supervision

2018 2016 2014

57


Among the specific difficulties in terms of the growth of small and medium-sized enterprises, the respond-ents highlighted the lack of vision and ambition of business leaders and labor regulations. The lack of financing has fallen in importance as a barri-er to growth, going from 20% to 14%, in line with improved access to financing in recent years. Reg-ulatory barriers and the difficulty of attracting and retaining talent are also indicated (Figure 46).

In order to favor the sustained growth of medi-um-sized enterprises, 21% of the respondents considered it necessary to increase their interna-tionalisation and drive forward innovation (18%). The exploitation of the digital revolution and inorganic growth represent other options considered by the respondents (Figure 47).

Lastly, measures are proposed to reduce the weight of bureaucracy and speed up procedures for the pro-curement of licenses and permits, such as:

• Speeding up resolution time frames.

• Applying positive failure to respond.

• Driving forward the digitalisation of Public Admin-istration.

• Making progress with the market unity act and the use of one-stop contacts.

The assistance to entrepreneurship in the UK is held up in this chapter as an example of international good practice, as well as the intra-entrepreneurship program of Telefónica and the Cepyme 500 business growth program as examples of good business prac-tice.

Previous editions of the Barometer of the Círculos put forward the cases of Israel, the Netherlands, New Zealand and the UK as examples of support to entrepreneurship and Switzerland and New Zealand owing to their drive to grow small and medium-sized enterprises. The intra-entrepreneurship examples of Ferrovial and Repsol were also held up as good busi-ness practice, as was the Cre100do program for the growth of medium-sized businesses.

Figure 45 Distribution of businesses by size, 2008-2017 (% of total)

Source: Círculo de Empresarios, Eurostat, 2017.

Figure 44 Reasons impeding greater entrepreneurship in Spain



2008 2017 (Eurostat estimates)

Micro (0-9)

Small (10-49)

Medi-um-sized (50-249)

Large (>250)

Micro (0-9)

Small (10-49)

Medi-um-sized (50-249)

Large (>250)

Spain 93.11 5.99 0.78 0.12 94.83 4.44 0.60 0.12

Germany 82.86 14.17 2.45 0.52 82.16 14.83 2.53 0.47

France 94.46 4.59 0.78 0.16 95.26 3.98 0.62 0.14

Italy 94.27 5.11 0.53 0.08 95.20 4.23 0.49 0.08

Portugal 94.93 4.35 0.63 0.09 95.25 4.03 0.62 0.10

United King-dom

89.29 8.79 1.55 0.37 88.94 9.25 1.48 0.32

7%4%

7%

10%

16%

16%

17%

23%

Regulatory and bureaucratic environment unfavorable towards business start-ups

Lack of social recognition of business people

Absence of training with respect to the entrepreneurial spirit in formal education

Excessive fear of failure in Spanish culture

Lack of adequate tax incentives

Difficulty of accessing venture capital financing

Scarcity of public programs to support entrepreneurs

Scant business involvement Scant business involvement, mentoring, etc.)

58


Figure 46 Main difficulties faced by small and medium-

sized enterprises to grow into larger

businesses




Figure 47 Measures to achieve

sustainable growth of medium-sized

enterprises




Figure 48 Actions to speed

up the procurement of permits and licenses




9%

7%

9%

10%

13%14%

18%

20%

Lack of business leadership and vision

Labor regulations

Financing markets reluctant to take risks in the development of small and medium-sized enterprises.

Administrative and regulatory barriers

Difficulty in attracting and retaining talent

Tax legislation

Strong competition from large companies in Spain

Hidden economy

Increase the degree of internationalisation of businesses

Foster innovation

2016

2018

Inorganic growth (mergers and acquisitions)

Exploitation of the digital revolution, seeking out new opportunities and reviewing the business model

Incorporation of strategic partners

Improve the corporate governance model

Encourage the development of collaborative ecosystems

Diversify the sources of financing

Strong leadership in order to overcome cultural resistance (to risk-taking, failure, business ambition, etc.)

10%

3%4%

8%

3%6%

0%

13%25%

21%

11%14%

10%

13%12%

16% 18%

13%

14%

20%

20%

20%

26%

Reduce the inefficiency and/or increase the pace in terms of regulations, reducing resolution time frames and/or applying positive failure to respond

Drive forward the digitalisation of Public Administration.

Drive forward compliance with the Market Unity Act in order to reduce complexity

and avoid duplication

Deploy the single point of contact system

Reduce the scope for discretion in administrative decisions

59

Innovate UK is the UK’s innovation agency. It has 300 staff and supports innovators in developing and growing their businesses. Since 2007 it has assigned more than 1.8 billion pounds to innovation, pro-viding a similar amount to partners and businesses. It has assisted 8,000 organisations with projects estimated at 16 billion pounds and created around 70,000 jobs.

Some of the activities that it performs consist of competitions to obtain financing and conferences on innovation. It is also developing a strategy to drive inclusion and diversity, including promoting the role of women in innovation.

Innovate UK collaborates with Tech City cluster UK, another initiative launched in 2010 by the then Prime Minister David Cameron as a technology hub. Its role is to assist technology businesses to grow by means of the development of programs and events, the promotion of opportunities, establishing contact between businesses aimed at collaboration, providing training to businesses in necessary skills, etc.

They also work on the removal of hurdles to entrepreneurship and access to financing and collaborate in the development of public policy. They act as a connection point between different innovation ecosystems in the UK.

Seven years on from the creation of Tech City, venture capital in London has increased 16-fold. A new technology business is created in London every hour.


Good Business Practices V

Cepyme500


International Good Practice IX

UK. Assistance to entrepreneurship

Source: Innovate UK

Good Business Practices IV

Intra-entrepreneurship in Telefónica


The program “Innovation Call: Telefónica’s next innovation may be your idea”. Telefónica aims to identify talent within the company and eliminate hurdles to these individuals feeling free to make proposals.

By means of an individual e-mail, all workers were invited to present their ideas. The project was brought to fruition using internal communications and face-to-face sessions.

In Telefónica, the intra-entrepreneurial teams that participate in programs such as Emprendedores, Ideal-ab and Óptima “enjoy some 15% of their time during the four months of the development of the project and have the chance to win major prizes”.

Initiative seeking to identify, select and promote a group of 500 medium-sized firms that lead business growth, in terms of both their results and their capacity to generate added value, employment, innovation and international scope.

They are granted an “official seal” and will form part of an annual publication in which the key data is shown and analysed, along with their origins, interviews with representatives, their main achievements and future projects. Indicators measuring growth are evaluated, along with the solvency and potential for innovation and the international expansion of these businesses.

The aim is to give recognition and domestic and international exposure to the chosen businesses, improv-ing their growth potential and visibility.

• Promotion and recognition of the business and its managers.

• Opportunity to interact with company directors who are motivated to innovate.

• Staff selection and retention.

• Relevant information on international markets.

• Provision of customized, exclusive solutions regarding financing, digitalisation and internationalisation, as well as other products and services.

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61

7. The contribution of the

Public Administration

For another year, the contribution of Public Admin-istrations is again the aspect scored most poorly by business people, particularly because they consider the size of Administrations to be excessive and due to the absence of management criteria that are com-parable to those of the private sector.

All evaluations related with the Public Administra-tions in the survey receive low scores, below 3.6 and far below the OECD average. The aspects scor-ing worst consist of the efficiency of public sector spending (2.6), corruption (2.9) and the effect of publicly managed companies (3.3) (Figure 49).

Figure 49 The Contribution of Public Administrations. Collected scores in the Barometer of the Círculos, 2018


7

6

5

4

3

2

1

NZL

NZL

LUX

DNK

NZL

USA


Functioning of the justice system

Tax burden


Effect of publicly managed companies

CorruptionEffect of the use of subsidies

62


Few changes are noted with respect to the 2016 Barometer, although almost all aspects improve in comparison with the 2014 edition (Figure 50).

In terms of size, small businesses give the worst evaluation of all aspects of the contribution of Public Administrations, with scores similar to those of me-dium-sized enterprises in all aspects other than the impact of subsidies on competition (Figure 51).

Figure 50 The Contribution of

Public Administrations. Trend in the collected

scores between the editions of 2014, 2016

and 2018



Figure 51 The Contribution of

Public Administrations. Collected scores by

size of company, 2018



The options receiving the best evaluations on the part of the respondents with regard to achieving more efficient and effective management of Pub-lic Administrations consist of (Figure 52): reducing the size (28%) and assimilating the management of public sector employment to that of the private sector (27%). These also received the highest scores in 2016.

Among the measures to reduce the public deficit, the most notable were structural reform of Public Ad-ministrations to improve their efficiency (37%), ac-tions on the hidden economy (29%) - an option that was not included in the 2016 edition, and greater control on the part of Central Government of the defi-cit and other levels of Public Administration (20%) (Figure 53). No relevant evaluations were obtained on the introduction of cuts to the provision of basic

or social services, or increases in taxation.

Among the tax reform proposals aimed at business growth, the following were notable:

• The fight against fraud (29%).

• Reductions in the corporation tax rate, accompa-nied by a reduction in incentives and deductions relating to this tax (20%).

• Improvements in transparency and the distribu-tion of the tax burden, along with the standardisa-tion of tax rates at a national level.

No relevant evaluations were obtained on propos-als that would entail reductions in Corporation Tax or social security contributions in exchange for VAT increases.

7

6

5

4

3

2

1


Tax burden




2018

2016

2014

7

6

5

4

3

2

1


Tax burden






Major corporations

63

7. The contribution of the Public Administration

Figure 52 Measures to raise the efficiency and transparency of public authorities and increase their focus on serving citizens



Figure 53 The most important initiatives to ensure adequate control of the public deficit

N.B.: The percentages are calculated according to the number of respondents who have chosen that option as one of the three most relevant. The option “Action against the hidden economy” was not included in the 2016 edition.


Figure 54 Most beneficial tax reforms for the growth of Spanish business

N.B.: The percentages are calculated according to the number of respondents who have chosen that option as one of the three most relevant. The option “Additional reduction in the rate of corporation tax offset by an increase in VAT” was not included in the 2016 edition.


Reduction in the size of Public Administrations

2016

2018

Make the management of the public sector more similar to that of the private sector (hiring, performance appraisals, incentives, etc.)

Improve the use of new technologies by the Public Administration.

Redistribution of competencies between different levels of Public Administration.

Improve the training of civil servants

Greater private sector participation in the provision of public services (education, health, social services, etc.)

13%

4%

13%5%

16% 26%

28%

13%

17%15%

23%

27%

A structural reform of Public Administrations that improves their efficiency

2016

2018

Action against the hidden economy

Tax increases

Greater control by Central Government Administration of the budget deficits of other Public Administrations

Cuts in basic services (education, healthcare, etc.)

Cuts in social benefits and pensions

Assignment of greater control of the deficit of member states to the European Commission

20%

3%

6%1%

8%

41%

37%

13%

5% 0%

6%

31%

29%

Plan to combat fraud.

2016

2018

Additional reduction in the rate of corporation tax with the elimination of deductions and incentives

Additional reduction in the rate of corporation tax offset by an increase in VAT

Greater transparency regarding tax contributions and the share of the tax burden

Reduction of social security contributions offset by increases in VAT

Standardisation of tax rates throughout the country

16%

20%

13%

25%25%

29%

14%

6%

22%

14%

16%

64


Figure 55 Measures to improve the speed and quality

of the administration of justice


who have chosen that option as one of the three most relevant. The option “Drive forward the digitalisation of the

justice system” was not included in the 2016 edition.


The administration of justice continues to receive a low score, primarily due to the the fact that its slug-gishness affects business operations. Among the

measures proposed, the following are considered to be a priority (Figure 55):

Figure 56 Ranking of Spain in

terms of perception of absence of corruption

Source: Developed in-house with data from the Corruption Perceptions Index,

2017, Transparency International.

• Foster the use of alternative conflict resolution mechanisms, such as mediation and arbitration (19%).

• Improve management and organisational struc-ture (19%).

• Drive forward the digitalisation of the justice system (19%) (option not included in the 2016 edition).

The options related to improvements in the training and selection of judges have received lower scores in this edition of the Barometer.

With regard to corruption in Spain, the majority of the business people consulted consider that corruption

should not be considered as commonplace, but rath-er that it has been concentrated in some economic sectors and public institutions. It is, however, ac-knowledged that there is a significant indirect impact due to the fact that the ill repute of institutions leads to incapacity to introduce reforms.

This vision is consistent with the results of the Cor-ruption Perceptions Index 2017 (Transparency Inter-national), that places Spain a number 42 among 180 countries, its worst ranking of the last decade. This is one position below that of 2016 and 17 below the position occupied in 2007 (Figure 56).

Among the most effective measures in the fight against corruption, the respondents consider the fol-lowing important (Figure 57):

Strengthen alternative conflict resolution mechanisms, such as mediation or arbitration

2016

2018

Improve the management capacities of courts and their organisational structure

Improve the system giving access to judicial careers

Drive forward the digitalisation of the justice system

Improve the training of judges, particularly with regard to matters that require technical knowledge

Improve the quality of the regulatory framework (in order to reduce the tendency towards litigation and ambiguities in interpretation)

Increase the technical and personnel resources of justice administration

16%

2%

15%

13%23%

22%

19%

19%

20%

10%

2%

20%

19%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

23 2325

2832

30 31 30

4038 37

41 42

-1

65


International Good Practice X

Sweden. The pension system

Sources: Ministry of Health and Social Affairs, 2016,“The Swedish old-age pension system”.

Figure 57 Most effective measures to fight corruption

N.B.: The percentages are calculated according to the number of respondents who have chosen that option as one of the three most relevant. The option “Inspection bodies that are more independent” was not included in the 2016 edition. The option “Existence of codes of conduct and internal complaints systems, both within the Public Administration and the private sector” was not included in the 2016 edition.


• Increase transparency and control of public ac-counts, and of political parties and interested stakeholders (29%).

• Hardening of penalties (27%).

• Inspection bodies that are more independent (19%).

In this edition, we present new examples of interna-tional good practice that may serve as a benchmark to improve the performance of Spanish Public Ad-ministrations: the case of Sweden, due to its new pension system, Italy for its extra-judicial conflict resolution framework through mediation and South Korea owing to its extensive use of electronic public

procurement aimed, among other purposes, at con-trolling corruption.

The previous editions of the Barometer of the Círcu-los presented other examples of international good practice (Appendix 3): Sweden, Denmark, Finland and Switzerland, as examples of personnel man-agement, similar to that in the private sector. South Korea, due to the introduction of ITC in its judicial system. Denmark and Finland as a benchmark for their judicial system, anti-corruption environment and reforms of their territorial administrative struc-ture. The UK as an example of intelligent regulation, efficiency of the tax system, anti-corruption legisla-tion and public audit body. New Zealand as an exam-ple of the efficiency of public spending.

The result of reforms agreed between political parties, the Swedish pension system is based on three pillars:

• The pension associated with the level of employment income: calculated in accordance with the in-come throughout the working life, from 16 years of age and that may be collected as of 61 years of age. The pension is updated in line with the trend in average income.

• The guaranteed pension: this is a basic pension for individuals without income or as a complement for persons with reduced pensions. It is collected as of 65 years of age and the amount depends on the years of prior residence in the country (minimum of three). This is financed out of the public budget and is updated in line with inflation.

• The pensions fund (premium fund): 2.5% of the contributions are invested in a fund, the beneficiaries of which are the contributors themselves.

During the working life of a person, 16.5% of their income is channelled to the pensions system: some 16% of the contribution finances existing pensions (pension associated with the level of income) and the remaining 2.5% is channelled to the fund of the workers themselves, i.e. their future pension.

Greater transparency in public sector control, audit and accounts processes, as well as of political parties and stakeholders

2016

2018

Hardening of financial and non-financial penalties (including the restitution of items acquired illicitly)

Existence of codes of conduct and internal complaints systems, both within the Public Administration and the private sector

Inspection bodies that are more independent

General replacement of the licensing framework with statements of compliance

General application of the concept of positive failure to respond

Improvements to the ethical practices of businesses and in training

19%

5%

15%

5%

31%

29%

6%

5%

20%

15%

27%

23%

66


In Korea, the implementation of an electronic national public procurement system has contributed to significant improvements in transparency and the trustworthiness of procurement.

The Korean Public Procurement Service (PPS) introduced KONEPS in 2002. This end-to-end electronic procurement system covers registrations, tenders, contracting, inspection and payments, with all asso-ciated documents exchanged online. KONEPS connects to 140 external systems to share information in real time and offer a single point of contact.

All public organisations are required to announce their tenders through KONEPS. In 2016, public procure-ment in Korea amounted to US$101 billion, of which 62.6% was performed through KONEPS, connecting 52,223 public organisations with the 348,069 registered private businesses.

The system has improved the efficiency of public procurement and reduced transaction costs. In addi-tion, it has improved participation in public procurement and transparency, hindering corrupt behavior by reducing the possibility for illegal practices. For example, the Korean competition authority, the Korea Fair Trade Commission, uses BRIAS, one of the systems connected to KONEPS. This enables it to identify suspicious behavior in tenders.

In accordance with the evaluation of the Korea Anti-Corruption and Civil Rights Commission, since the launch of KONEPS the perception of the trustworthiness of the Public Procurement Service (PPS) has improved from 6.8 (out of 10) to 6.52.

International Good Practice XII

South Korea. Control of corruption through electronic

public procurement.

Source: OECD, 2016,“Preventing Corruption in Public Procurement”.

International Good Practice XI

Italy. Alternative conflict resolution methods:

mediation

Source: EU, DG for Internal Policies, 2016 “The Implementation of the

Mediation Directive”.

There is also the possibility of accessing “supplementary occupational insurance schemes ” . These are generally associated with employers, which may at times contribute up to 3.5% of the worker’s income. 90% of workers are attached to this scheme, enabling them to increase their pension.

The new pensions system was introduced gradually It fully integrates persons born subsequent to 1953. For those persons born prior to 1938, the previous system applies in its entirety. For the remainder of pen-sioners, individuals born between 1938 and 1953 are subject to partial application of both systems, the applicable percentage of the new system being greater the more recent the date of birth of the subject.

Based on the transposing of Directive 2008/52/EC, Italy modified its legislation regarding mediation through Legislative Decree 28/2010. The reform is considered a success by having significantly increased the number of cases resolved through mediation, reducing the burden on the standard judicial system.

The impact of the new law is primarily due to two elements. Firstly, the duty to conduct a first mediation session that applies to some civil and mercantile cases (among others, disputes related to banking ser-vices, insurance or real estate transactions). These cases represent approximately 8% of the disputes that reach the courts. The lack of attendance at this first session, which is of low cost and involves professional mediation, may have a negative impact on the ordinary trial Nevertheless, if the first session takes place and is not resolved successfully, the judicial proceedings commence without consequences for the parties.

Secondly, for cases not subject to a mandatory initial session, the law also introduces incentives towards using mediation (tax deductions of up to 500 Euro and rapid acknowledgement of the enforceability of the mediation agreement).

Approximately 200,000 disputes are resolved by mediation every year in Italy (a high number, using data from the same source - see below, only four EU countries,Germany, the UK, the Netherlands and Italy de-clare more than 10,000 cases of mediation). 81.6% of these originate in cases for which the law requires an initial mediation session.

The high degree of success in cases requiring mandatory mediation, together with the ease of withdraw-ing from this following the first session and the low cost, have created a climate favorable towards this mechanism, even among a law profession that was initially averse to this system.

67


68


69

8. Social progress indicators

The 2017 Barometer identified a growing concern regarding social progress. The comparative results for the main indicators of social progress for Spain were analysed. These bring together aspects that are not included in the competitiveness ratings, though which affect the degree of progress of society as a whole, such as inclusive growth and equal oppor-tunities.

The Social Progress Index of the SPI (Social Progress Imperative) conferred Spain with 17th place in its world ranking in 2017, reaching 16th in 2018 of the 128 countries headed up by Denmark. Spain is no-table for occupying 4th position in terms of founda-tions of well-being and, within this section, occupies first place in the subsection on health and well-be-ing. The positions in terms of environmental quality (3rd) and with regard to access to basic knowledge (4th) are also very positive.

Figure 58 Ranking in the Social Progress Index, 2018

Source: Developed in-house with data from the Social Progress Index, 2017.

70


The intention of the 2018 Barometer is to incor-porate within the survey a section enabling meas-urement of the perception of business people with regard to a number of variables related to social progress (Figure 59). The best score is obtained by the health and well-being of workers (5.2 out of 7). The full integration and professional development of working women is also scored fairly positively (4.2). Nevertheless, there are other aspects that are not scored so positively, such as environmental sustain-ability (3.8), the integration of the immigrant popu-lation (3.8) or the proper use of talent, particularly senior talent (3.2).

In terms of the size of businesses, it is noted that small enterprises give lower scores for all variables

relating to social progress. Medium-sized business-es produce figures that are very similar to those of large companies in terms of the proper use of talent, the integration of immigrants and working women and values very similar to those of small businesses with regard to the development of collaborative ac-tions with local communities, the health and well-be-ing of workers and environmental sustainability.

Among the measures necessary in order for Spain to make progress in terms of the degree of social development, education in a culture of endeavor, improvements to the quality of employment, guaran-tees of basic needs, the drive towards equal oppor-tunity of access to higher education and the fostering of gender equality at all levels are notable.

Figure 59 Social progress.

Collected scores in the Barometer of the

Círculos, 2018


Source: Barometer of the Círculos (2018) and Social Progress Index 2017.

Figure 60 Social progress.



Source: Barometer of the Círculos (2018.

7

6

5

4

3

2

1

CHE

NZL


Health and well-being of workers

Development of youth talent

Development of collaborative actions with local communities

on the part of businesses

Integration of the immigrant population

Environmental sustainability

Full integration and professional development

of working women

Proper use of senior talent

7

6

5

4

3

2

1

Health and well-being of workers

Development of youth talent

Development of collaborative actions with local communities

on the part of businesses

Integration of the immigrant population

Environmental sustainability

Full integration and professional development

of working women

Proper use of senior talent



Major corporations

71

8. Social progress indicators

Figure 61 Necessary measures to improve the degree of social progress in Spain



7%

4%1%5%

8%

12%

13% 14%

15%

21%Education in a culture of endeavor

Improve the quality of employment

Guarantee basic health, income, housing and educational needs

Foster gender equality at all educational and professional levels

Ensure equal opportunities in access to higher education

Strengthen personal freedom and political rights

Encourage tolerance

Foster the inclusion of minorities

Increase the minimum wage

Ensure environmental quality

72


Gover

nmen

t agr

eem

ent f

or e

ducat

ion

73

9. Evaluation of future priori-ties

The Barometer has consulted business people on the priorities for economic policy and main compet-itive challenges that Spain and the European Union must face over the medium and long term.

Remaining as the most significant priorities for economic policy for Spain and mentioned by over 50% of the respondents, the goal of achieving a

government agreement in education, the reform of Public Administrations and dealing with corruption and the hidden economy are considered the most crucial. Greater effort in innovation and the adoption of technology, improvements to the workings of the labor market and reforms to the pension system are mentioned in second place (Figure 62).

Figure 62 Short and medium-term priorities in economic policy in Spain

N.B.: The percentages are calculated according to the number of respondents who have chosen that option as one of the most relevant measures. In 2018 the respondents were able to choose five options, whereas the number of alternatives in 2016 amounted to 3. In the 2016 edition, the options “Reform of the pension system” and “Define and drive forward a digital strategy” were not included.


80%

70%

60%

50%

40%

30%

20%

10%

0%

2016 2018

Gover

nmen

t agr

eem

ent f

or e

ducat

ion

Struct

ural

refo

rm a

nd fu

nctio

ning

of P

ublic

Adm

inist

ratio

n

Deal w

ith c

orru

ption

and th

e hid

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cono

my

Great

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fforts

in in

nova

tion

and te

chno

logy

Impro

ve th

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kings

of t

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bor m

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Refor

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sion

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Fost

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prene

ursh

ip a

nd b

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ynam

ism

Impro

ve th

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mini

stra

tion

of ju

stice

Define

and

driv

e fo

rwar

d a d

igita

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tegy

Impro

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mpet

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f the

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Tax r

efor

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Impro

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kings

of fi

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ial m

arke

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74


With regard to policy at the European level, the re-spondents consider that the Spanish government should consider the areas of fiscal harmonisation and the education system to be priorities, followed by banking union and the integration of capital mar-kets, the strengthening of the integration of strategic sectors and innovation policy (Figure 63).

In addition, when asked about the main global chal-lenges to the competitiveness of Spain and Europe

over the medium and long term (Figure 64), the re-

spondents indicated the following three:

• The prominence of emerging economies in the

Asia-Pacific region.

• Demographic challenges (birth rate and ageing)

• Disruptive technologies.

Figure 63 Short and medium-

term priorities in economic policy in the

EU




Figure 64 Medium and long term competitive challenges




60%

50%

40%

30%

20%

10%

0%

Fisc

al co

ordina

tion

Educat

ion

syst

em

Bankin

g un

ion

and in

tegr

atio

n of

cap

ital m

arke

ts

Great

er E

urop

ean

integ

ratio

n in

stra

tegi

c se

ctor

sIn

nova

tion

policy

Suppor

t to

pan-E

urop

ean

infra

stru

ctur

e

Inte

grat

ion

of e

nerg

y mar

kets

Single

digita

l mar

ket

Gover

nanc

e m

odel

Impro

ve tr

aining

and

wor

ker a

bility

Corre

ctio

n of

imbala

nces

Other

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2016 2018

The power of emerging

economies in the Asia-Pacific

region

The demographic trends in

developed countries

Disruptive technologies

Migration flows The scarcity of natural and

energy resources

Environmental deterioration

Other

75

9. Evaluation of future priorities

76Rec

omm

enda

tions

77

Recommendations

Basic resourcesINFRASTRUCTURE

Infrastructure investment in Spain has fallen back by approximately 60% since the peak in 2009, going from 5.1% of GDP (55.03 billion Euro) to some 1.9% in 2017 (approximately 22 billion). This is far below the European average (2.7%), exceeding only Por-tugal and at levels similar to those of Ireland. This reflects the lack of a strategy with long-term vi-sion. This trend contrasts with that in Germany and France, where the level of annual investment was maintained during the crisis, at around 62 billion and 79 billion Euro respectively. During the decade of the 2010s, the UK, Germany and France envis-age investment of 26%, 18% and 3% more than the previous decade respectively. This is in contrast to an anticipated aggregate fall of 35% in Spain (from 43.835 billion to 28.316) (SEOPAN).

Infrastructure provision is an essential element in driving economic development, job creation and competitiveness, as well as well-being and territorial cohesion . In the case of Spain, every million Euro invested generates an average of 14 direct and indirect jobs, as well as a tax footprint of 50% of the total investment.

Spain maintains a strong position in terms of certain transport infrastructure (high-capacity road network, high-speed rail network, airports and ports). De-spite necessary fiscal consolidation, it is important to maintain existing infrastructure and promote new investment to enable Spain, given its geographical position, to act as a platform for logistics and the establishment of businesses. Only 5% of freight transport in Spain is carried by rail, the same level as Malta, Cyprus and Ireland. This is in contrast to Germany, where this figure reaches 25%, and Italy, the UK and France, with around 15%. It is far from the 17.3% average for the European Union and the objective of reaching 30% by 2030. In turn, it is necessary to cover a number of gaps that exist in the provision of infrastructure and facilities for cit-izens (water, healthcare, education...) and respond to the challenges of the global economy, such as the management of natural resources, urban mo-bility and demographic changes, among others. In tandem with the foregoing, European climate policy and the commitments acquired by the EU in COP21 of achieving a 40% reduction in CO2 emissions by 2030, make it necessary to establish an energy model and regulatory framework that favors the sustainability and competitiveness of the Span-ish economy.

78


• Reach a stable Government Agreement with a long-term vision and without excluding pub-lic-private collaboration, following the experi-ence of the UK and France . This strategy would enable maintenance of the quality of existing infrastructure and the possibility of developing new projects that respond to the socio-econom-ic needs of Spain in compliance with European regulation.

• Promote Inter-modal connections and rede-sign the management of infrastructure, pri-marily in terms of the transport of freight between rail and port, fostering the development of Spain as a world-beating logistics platform .

• Renew water infrastructure, improving the treatment and reuse of wastewater..

• Foster investment in mobility and and urban renovation and in the adaptation of our cities to new technologies, as in the case of Japan, the UK and France.

• Move forward with regard to projects to establish electrical and gas connections with Europe in order to improve security of supply and increase the potential of alternative energy sources .

• Promote measures to refurbish buildings, fol-lowing European regulations on energy efficiency as in the cases of Sweden and Denmark.

EDUCATION

Spain leads the EU in terms of the school drop-out rate, with 16.3% of young people leaving school in 2017. This almost doubles the EU average of 10.6%, and is far from the target set by Brussels of 15% for 2020. If the level of studies of our young people between 25 and 34 years of age is analysed, some 35% only reach the level of compulsory secondary education (ESO) (15% in the EU22), rising to 48% if we take into account those who abandon their stud-ies following the baccalaureate. Only 24% possess a vocational training qualification (34% in UE22), compared with 49% in Germany and 58% in Austria.

This reality in terms of education, together with the meagre degree of professional orientation and the disconnect between the education system and the business world, are the main causes of the high level of youth unemployment in Spain (35%), almost dou-bling the EU average (15.6%) and limiting the em-ployability of Spanish youth . Although our education system has managed to reduce the school drop-out rate, it continues to be inefficient at reaching the lev-els achieved by our European partners and providing the knowledge, capabilities and skills required by an ever more global and digitalized economy.

According to the OECD, up to 2020 approximately two-thirds of jobs that will be generated in the EU will require a vocational qualification. The education-al offering in Spain must face up to this challenge. In the case of dual vocational training penetration amounts to just 3%, compared with 60% in Germa-ny. It is however important to point out that since 2009 enrolment in the various levels of vocational training has grown by some 71.6%, reaching around 800,000 students.. In the case of dual vocational training, the number of young people enrolled has increased by some 457% since 2012 (from 4,292 to 23,919). The number of training institutes has likewise increased (from 173 to 894) as have the businesses committed to this area of training (from 517 to 9,916)

Moreover, digital transformation is leading to the appearance of new products and new methods of design, production, distribution and access to knowledge. According to the World Economic Forum, 65% of children currently beginning primary studies will occupy jobs that currently do not exist. Furthermore, young people completing their studies this year will have to recycle their knowledge be-tween 10 and 14 times during their working life, with the high degree of learning capacity that this entails. Our educational model must respond to these new needs with larger doses of innovation and creativity. Our young people will need to acquire new skills and competencies, such as collaborative and team work-ing, time management and the capacity to adapt to a labor market in permanent flux.

The high levels of drop-out and youth unemploy-ment, as well as changes to the concept of tradition-al employment with regard to professional profiles and skills requires a stable, long term education reform by means of a consensual government agreement. This must not only prioritize the updat-ing of models and content, but also provide greater orientation to and collaboration with the institutional, educational and business spheres. The achievement of this would enable a reduction in youth unem-ployment, the retention and attraction of talent and the fostering of the competitiveness of the Spanish economy, contributing to increasing the confidence of young people with respect to their future. Reach-ing this necessary government agreement would generate more inclusive growth, favoring the sustainability of the Welfare State and greater social progress. Our education system must in-clude essential pillars, such as entrepreneurial spirit, ethics, merit, effort, creativity, communications skills and proficiency in languages.

Core education

• Reduce the high school drop-out rate following completion of compulsory secondary education by deploying detection and preventative meas-ures, fostering the commitment of students to the

79

Recommendations

design of their career, extending compulsory edu-cation to 18 for young people over the age of 16 that have not completed compulsory secondary education and increasing the flexibility of transi-tion between educational plans, as in the case of Denmark, Switzerland and Germany.

• Develop effective career guidance, promoting the development of this in schools in a manner that is coordinated between all parties implicat-ed in the educational process (centers, teachers, businesses and families), integrating this as a subject within the compulsory education context and provided by professional careers officers in line with the experiences of Germany, Austria and Switzerland.

Deploy a network of career guidance centers at regional level to train careers officers and ac-tively cover the needs of schools and colleges and of young people, such as in Norway.

Create a body certifying excellence and effi-ciency in the coordination of career guidance in educational centers, following the experience in Germany.

Promote business initiatives relating to career guidance to young people in collaboration with educational centers within their geographical area.

• Face up to the new challenges of a global, dig-italized world, improving training in digital skills at all educational levels, fostering the use and practical application of information technolo-gies (the UK), investing in the ongoing training of teachers with regard to the new technological and professional requirements of the market (Finland) and strengthening the knowledge of languages, particularly English, proficiency in which should be general among all students (the Netherlands).

• Redesign the system of grants and assis-tance, making these conditional upon academic results, so that economic and financial hurdles do not limit access to education on the part of students of high ability, thus guaranteeing the principle of equal opportunity.

• Promote, at all levels of education, a spirit of entrepreneurship, respect for the social value of business people, social responsibility, the accept-ance of failure as part of the learning process and a greater degree of education in economics and finance.

• Reform the teaching profession and man-agement teams of schools and colleges by introducing a “MIR educativo” that establishes a teacher training and selection system that guar-antees that teachers possess the skills required by the future educational model.

• Design a teaching induction program that se-lects candidates who are academically suitable and who have the necessary empathy, leadership, collaborative and adaptability skills to work flexibly with groups of students. Moreover, in order to get away from being the only country in the EU where the management teams of schools are chosen by the Board of Governors and the teaching staff, we should introduce a system that combines partici-pation and professionalisation.

• Exalt the work of teachers and acknowledge the importance of their function in order to im-prove the competitiveness and well-being of society, establishing variable remuneration that rewards dedication and teaching quality.

• In line with the experience of the Madrid Regional Authority, publish the results of schools and train-ing colleges in university entrance tests, thus en-abling their quality to be evaluated.

• Standardize the criteria for the corroboration of university curricula between the various re-gional authorities, thus favoring the geographical mobility of students.

• Create an independent certification body for ex-cellence in teaching centers, based on the expe-rience in Germany.

• Guarantee cooperation between the Ministry of Education, Culture and Sports and the re-gional authorities, establishing common strate-gic objectives that are compatible with the legal and administrative independence of the regional authorities, following the models of Germany, Canada and the USA.

Vocational training

• Promote and improve the image of vocational training among young people:

Increase the range of intermediate grade vocational training, making this compara-ble with reference European countries both in terms of the number of qualifications per professional group and the number of places. Make the range of vocational training compa-rable to the European average, requiring the creation of 150,000 new places with a high degree of geographical capillarity. In the case of establishing an ambitious goal of achieving the average of the benchmark countries, headed up by Austria and Switzerland, this figure would amount to 350,000 new places.

Distribute the new centers with a greater de-gree of capillarity in order to ensure that all young people are able to access vocational training, rather than simply those who live in large cities. The centers should also be located near to small and medium-sized businesses.

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Offer vocational training subjects as options within compulsory secondary education in order to foster this option, as in the case of Norway.

Create large professional schools in the main population centers where vocational training students are concentrated, alongside the devel-opment of a capillary network of rural centers.

• Strengthen content:

Increase the number of qualifications per professional group, increasing the degree of specialisation of students and their adaptation to the needs of businesses (especially in terms of Dual Vocational Training), following the ex-ample of Switzerland.

Increase the participation of businesses in the creation and adaptation of training content by giving business associations the capacity to develop and update curricula. Develop a sys-tematic and independent system for adapting the content of vocational training to the needs of the labor market, particularly within the tech-nology area (Finland). Increase the number and quality of sources of information used to anticipate the needs of the labor market and create an organisation relating to sectors or professional disciplines, charged with continu-ously identifying the new requirements of each sector and establishing continuous contact with businesses.

Design an educational framework for voca-tional training that is more specialized and detailed in order to reduce the deficit of pro-fessionals in specific areas of labor. In order to achieve this, it is necessary to involve business associations in the definition of curricula and to connect the supply of and demand for work.

Adapt educational content to the new re-quirements sought in the labor market, par-ticularly within the digital area and in terms of enterprise skills.

• Redistribute responsibilities among stake-holders:

Centralize activities around the planning and creation of qualifications in order to limit the lack of market unity in Spain.

Get businesses involved in activities under-taken prior to teaching, especially in the de-tection of needs and in academic planning and evaluation.

Involve employment institutions, at both a regional and national level, so that they work with education institutions with the aim of adapting the range of education on offer to the requirements of the labor market.

Dual vocational training model:

• Promote Dual Vocational Training, in line with the experience of Germany, Austria and Swit-zerland, creating an efficient system of training grants and/or loans with more resources and a greater degree of integration of businesses in the education system.

• Define a national regulatory framework that is common to all autonomous regional authorities so as to increase the penetration of Dual Vocation-al Training in major corporations, guaranteeing the application of the main quality criteria in the training companies: apprentice salary, selection of candidates by the businesses, quality of teaching through certification of trainers and flexibility in application in order to guarantee suitability for the needs of businesses, as in the cases of Germany and Denmark.

• Maximize the involvement of business in the creation and adaptation of educational content. Provide business associations with the capacity to develop and update training curricula in a manner that is responsive and within a time frame of less than one year, such as in Germany, Switzerland and Denmark. Create an independent organisa-tion based around sectors or professional groups in order to identify the new needs of the labor market, such as in Norway and the Netherlands.

• Facilitate the deployment of Dual Vocational Training in small and medium-sized enter-prises using support measures (financial, advice, adding flexibility, etc.) for those businesses that lack the necessary infrastructure and resources to adopt this (shared training centers), such as in Germany or Switzerland.

Given its mandate to develop vocational training according to the Chamber of Commerce Act and its degree of spread throughout the country, the Spanish Chamber of Commerce, should be the body charged with advizing and assisting small and medium-sized enterprises on the de-ployment of Dual Vocational Training, prevent-ing a lack of experience from becoming a barrier. Moreover, it is important to promote the creation of a quality seal that evaluates the performance of Dual Vocational Training in autonomous regional authorities, including the levels of training of the tutors and the educational content, following the experience of Germany.

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THE KNOWLEDGE ECONOMY AND DIGITAL TRANSFORMATION

The competitiveness of Spain requires investment in technology research and development (R&D), talent with innovative knowledge and capabilities and a business structure capable of adapting and creating products and services that respond to changes in the market and in society. In addition, our future growth is dependent on the capacity to take full advantage of the potential for the spread of knowledge. This was the driver for productivity rises over much of the last century.

Total 2016 expenditure in R&D in Spain amounted to 1.19% of GDP (2.03% in the EU), far from the target of 2% set by the European Commission for 2020. The greatest differential between neighbor-ing countries occurs with respect to private sector investment, which is some 0.64% compared with 1.32% in the EU and 1.62% in the OECD. Between 2009 and 2016, resources assigned by the public sector fell some 12.6%, compared with growth of 17.1% in the EU average or 35.7% in Germany (Na-tional Statistics Institute and Eurostat). Investment on the part of Spanish businesses during this period fell by some 5.8%, compared with growth of 54.6% in the UK, 36.8% in Germany and almost 34.2% in the EU as an average.

In terms of the development of innovation, Spain be-longs to the group of countries showing “moderate” behavior in accordance with the EU Innovation Score-board 2017, alongside Portugal, Lithuania, Greece, Malta and Italy, among others. Simultaneously, since 2016 Spain has jumped 3 places, placing it at 17th among the EU28.. The training of human capital, a favorable environment for innovation and an attrac-tive researcher system are among the strengths of our innovation system. In contrast, the system suffers from weaknesses such as financing, the low-level of innovation in small and medium-sized businesses and the meagre degree of collaboration between public and private sector, both in terms of publications and funding. In Spain there is very little collaboration between the public and private sector, financing of public sector R&D by private businesses amounting to just 0.037 % of GDP (0.052% in the EU). This is reflected in the fact that Spain sits 28th (out of 128) in the Global Innovation Index 2017 (IN-SEAD), which is led by Switzerland, Sweden and the Netherlands.

Another factor prejudicing innovative behaviors within Spain is the inefficient coordination between central government and the autonomous regional authorities in terms of R&D policies. Innovative busi-nesses, particularly the smallest ones, are required to operate in a fragmented environment in which nu-merous initiatives exist at regional and national level.

Within the digital sphere, the new technology rev-olution is impacting directly on Public Adminis-trations, businesses and citizens, creating a new ecosystem. Proper adaptation to this environment will generate a positive effect on productivity, com-petitiveness and the internationalisation of Spain. Meanwhile, it is necessary to respond to new chal-lenges such as data handling and cybersecurity. As a result, the Government has created an interminis-terial working group coordinated by the Secretary of State for the Information Society and Digital Agenda.

The intensive use of digital technologies constitutes a key factor in social and economic transformation, reflected in a progressive change to the way we live, interact, work and create value. It also enables us to more efficiently develop new, more accessible and affordable solutions for a greater number of people, covering basic needs in essential areas such as health, education, financial and energy services.

Digital transformation is also impacting the labor market, the appearance of new types of jobs and a demand for new requirements and skills. According to the OECD, a quarter of workers on average feel that there is a mismatch between their skills and the tasks performed in their work. This figure rises to a third in Spain. Adapting talent to this reality would enable increases in productivity and salaries, thus achieving higher quality, more inclusive employment. This calls for rethinking and redesigning our educa-tion and ongoing training system. Jobs in the future will largely be related to production, distribution and knowledge transfer. This will lead to a double-digit increase in the demand for STEM profiles (Sci-ence, Technology, Engineering and Mathematics) up to 2020 (Randstad 2015). In contrast, enrolment in these types of university degrees in Spain has fall-en, with engineering seeing a decline of 24% since 2003. In the case of the percentage of workers with specific skills in technology, Spain is 21st out of the EU28, with some 2.4%. This compares with the fig-ure for Finland in first position (6.5%).

Lastly, the reduced size of our business struc-ture conditions the digitalisation of the Spanish economy. Accordingly, among small businesses with less than 10 employees (95.8% of the Span-ish business structure), 73.08% possess computers and 70.22% have an Internet connection. Of these, solely 29.81% have a website.

Likewise, within the group of innovative compa-nies, some 39% of small businesses, 65% of me-dium-sized enterprises and 71% of large corpora-tions carry out internal R&D activities. Innovations through the acquisition of external R&D also increase in line with the size of business, although they are performed by a smaller percentage of businesses throughout all tranches.

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Innovative institutional framework

• Transform the Centre for Industrial Techno-logical Development into a nationally based public-private entity, with a high degree of busi-ness participation and charged with designing the long-term strategy (10 years) of the Spanish science, technology and innovation system, fol-lowing the experience of Israel. This will handle the selection and development of priority areas for innovation, manage financing and generate syn-ergies between universities, technology schools and businesses.

• Move forward with the development of the Science and Technology Infrastructure Map through greater coordination between central government administration and the autonomous regional authorities.

• Give greater autonomy and provide strategic guidance to the Public Research Offices, to universities and to research units. In tandem, in-troduce mechanisms to evaluate the assignment and management of resources according to re-sults.

• Begin the process of integrating our technol-ogy centers, science and technology parks and business incubators in order to transform them into innovation hubs of excellence.

• Adapt infrastructure to changes in technol-ogy, enabling the development of new business and growth opportunities, as well as improving quality and accessibility.

• Foster applied research according to society’s needs, with public-private funding and coopera-tion in projects. This requires closer ties between companies, universities and R+D centers.

Business innovation

• Foster collaboration between business schools and higher education and research groups and institutions through the creation of hubs such as in the Basque country.

• Limit the guarantees required when granting finance for R&D projects, especially for start-ups and small and medium-sized enterprises

• Speed up the granting of technology certifi-cates from the Spanish Innovation Certifica-tion Agency (ACIE).

• Include the costs of the certification process within deductible expenses for businesses engag-ing in R&D projects.

• Enable the simultaneous application of tax de-ductions and bonuses for R&D to businesses in general, regardless of their size .

• Strengthen the knowledge society and creativi-ty and the use of products and services with high added value through the updating of deductions, reviewing current limits to compensation and link-ing this more flexibly to the retention of staff.

Innovative talent

• Establish special tax regimes that are stable and unique, in order to favor the attraction and retention of talent, as well as the effective estab-lishment of multinational centers of competence in Spain , .

• Foster the attraction of young research talent by modifying the structure of research careers in the public sector, introducing frameworks for promotion and fostering mobility between insti-tutions or between the public and private sector. In addition, promote the use of the EU Blue Card to enable the attraction of innovative research tal-ent from the rest of the world..

• Promote greater incorporation into the pri-vate sector of young researchers or technol-ogy managers in the development of product and process innovations . Given the low average size of our businesses, these would enjoy support and supervision on the part of universities and re-search institutes, as well as grants from the public sector during a period of time.

Digital transformation

• Design and promote a Government Agree-ment on Digitalisation with a long-term, crosso-ver view. . This agreement must include participa-tion by the main stakeholders and experts in this area with the role of adapting Spain to the new economic and social reality arising from digital transformation. In order to achieve this, coordi-nation of all actions down from the Government Presidency to Public Administrations, Ministries and private sector stakeholders is necessary.

• Foster coordination between Ministries and Public Administrations in the design and ap-plication of the Agreement on Digitalisation, guaranteeing market unity in the competencies transferred to the autonomous regional authori-ties so as to enable the appearance of a digital ecosystem connecting the various levels of Public Administration.

• Coordinate measures at a national level with those of the European Digitalisation Strategy 2020.

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• Prioritize the transformation of the educa-tional system in order to adapt this to a new Digital Society, strengthening digital skills and entrepreneurship at all levels of education , thus gradually closing the gap between what students choose and what companies require..

• Strengthen the intensive, responsible use of new digital technologies in all areas and at all levels of the Public Administration, enabling its modernisation and giving greater efficiency in the management and provision of services.

• Promote the deployment and use of digital technology, along with advice on change man-agement in small and medium-sized enterprises. Facilitate access on the part of technology SMEs to resources and grants in R+D, in order that they may develop and provide technology solutions for major companies.

• Promote a cybersecurity strategy for Public Administration in collaboration with the private sector, developing specific measures for small and medium-sized enterprises.

EmploymentOne of the major challenges faced by the Spanish economy is the reduction of an unemployment rate that afflicted 16.74% of the working population in Q1 2018, trebling the OECD average (5.5%) and doubling the average for the Eurozone (8.5%). De-spite the advances brought about by the employment reforms, our labor market suffers from structural un-employment of between 14% and 16% (Funcas). In addition, it is characterized by a high proportion of temporary contracts, reduced flexibility, unfavorable taxation and the inefficient design of both passive and active employment policies.

Although the economic recovery and the effects of employment reforms have enabled the creation of 2 million jobs since 2014, the levels of long-term unemployment are worrying (49.8% of the total), as is youth unemployment (36.3% of the total number of active young people of less than 25 years). This situation represents one of the principal dysfunctions of the Spanish labor market, with direct implications for the employability of the active population and their economic situation and indirect implications for social well-being and the economy as a whole. Approximately one out of every three young Span-ish people is out of work, a figure 25 percentage points above that of countries such as Germany, the Netherlands and Austria (with unemployment rates between 6.1% and 10.1%).

Moreover, youth unemployment afflicts mainly young people with little training or professional ex-

perience, the most vulnerable being those who leave school without completing secondary education, are not working and not in receipt of any type of training. In Spain, this group represents 16.4% of young peo-ple between 15 and 29, compared with 13.4% in the Eurozone and in the EU.

The proportion of temporary contracts in Spain stands at around 26.8%, in contrast with countries such as the UK (5.6%), Austria (9.2%) and Germany (12.9%). The main motives for this are the weight of tourism in the service sector and our employment legislation, which discriminates in terms of the cost of dismissing workers on permanent and temporary contracts. This fact has a negative effect on produc-tivity, geographical mobility, training, salary increas-es, the performance of activities that are technology and capital intensive, as well as on fertility rates, among others.

Spain is the only country within the OECD that saw a strong fall in employment during the crisis combined with increases in the number of hours worked per employee. By comparison, in Germany, which saw a greater fall in GDP in 2009, the reduction of the working week enabled job creation. This fact lays bare the lack of internal flexibility in our job market prior to the labor reforms of 2012.

Lastly, the high degree of tax pressure borne by Spanish businesses due to the labor factor hin-ders job creation, companies being responsible for paying 80% of the total burden of Social Security contributions. In contrast, in the UK, Germany, the Netherlands and Ireland, the payment of these is more evenly shared between the employer and the employee.

In conclusion, the deficiencies still displayed by the Spanish labor market, together with those that affect our productive structure, the education system and institutional framework, demand new reforms that promote the creation of stable, high-quality em-ployment. As a result, it is necessary to improve the current framework of labor relations to respond to the new challenges set by globalisation and digital transformation.

• Modernizing the system for hiring staff, fur-nishing it with greater rationality and simplicity by establishing a menu of three standard con-tracts, both full-time and part-time: permanent, due to business needs (of specific term) and youth (training).

• Making compensation for the termination of both temporary and permanent contracts comparable and reducing the costs thereof, thus making the system similar to that of countries

Recommendations

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with a lower proportion of temporary contracts and unemployment, such as the UK, Germany and Sweden. For new contracts, deploying a mixed compensation system, establishing an individual savings account with periodic contributions made by businesses, the amount of which would be lower during the early years in the case of perma-nent contracts, thus taking the so-called “Austrian backpack” as a benchmark.

• Establishing a mixed collective negotiation system adjusted to the business (for salaries and working hours) and to sector-based agree-ments (for minimum wages, training, pension funds and maternity), following the experience of Denmark. This would enable productivity to be linked to salaries, bearing in mind the differenc-es in competitiveness and size existing between companies operating in the same sector.

• Promote internal flexibility in labor relations, fostering greater functional mobility of workers and even professional groups or those with dif-ferent levels of training and functional versatility, reducing the need for approvals and administra-tive requirements.

• Reformulate active policies by means of com-pliance with a commitment to activity and the search for employment and foster the employabil-ity of the unemployed through greater public-pri-vate collaboration. Businesses must gain compe-tencies in the design, management and financing of the training programs for their employees, such as in Germany, Denmark and the UK, enabling ef-fective professional re-skilling and incorporation into sectors looking for workers.

• Support young and long-term unemployed people by lengthening the period for the receipt of unemployment benefits, making this effectively conditional on the acceptance of offers of work or training, following the experience of Germany and the Scandinavian countries.

• Adopt specific measures to foster youth em-ployment, many of which have been applied in Germany, Australia, the Netherlands and the UK:

Foster the employability of young people by means of dual training programs, whether professional or university-based. These must be designed and developed in coordination between the various stakeholders and under a common framework.

Incentivize non-employment placements in businesses, facilitating the establishment of agreements between companies and the State Employment Service. The possibility of

establishing these agreements with private stakeholders would also contribute towards extending their use.

Develop programs and actions aimed at guiding and providing professional qualifi-cations to young people.

Establish a specific minimum wage for young people, linked to the training of those with very limited qualifications as in the case of the systems applied in the UK, Germany, etc.

Incentivize the creation by public bodies of job clubs on the Internet, as in the case of Sweden.

Favor the hiring of young people, within the new system proposed by the Círculos, by means of a “contract for the insertion of young people (between 18 and 26 years of age) into the labor market”, with a maximum term of three years and the possibility of subsequent conversion into a permanent contract.

• Recommend adherence on the part of a larger number of businesses to the Entrepreneurship Unemployment Strategy initiated in 2013 by the Ministry of Employment and Social Security.

• Develop business initiatives similar to InCharge, initiated by 25 German businesses and aimed at increasing opportunities for unemployed youth in the European labor market through job boards, advisory tutorials, training, placements and job offers made by businesses.

FinancingFinancing plays a key and essential role throughout the life-cycle of businesses, contributing to their cre-ation and growth, to R&D activities and international-isation, among others.

Since the end of 2014, the conditions relating to access to financing in Spain have improved, main-ly due to lower interest rates and the recovery of domestic demand. This is evidenced by the new credit data for businesses relating to amounts below one million Euro, growing by 25.6% since 2014. In the latest half-yearly survey of the ECB (November 2017), solely 9% of small and medium-sized enter-prises surveyed considered access to financing to be a problem (8% in the Eurozone), compared with 30% in 2012, and some 23% indicated that they had increased the size of their bank loans (12% in the Eurozone).

In turn, the crisis and the development of alter-native sources of financing have enabled busi-nesses to reduce their dependence on bank

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credit from 78% in 2010 to 70% currently. Never-theless, this remains much greater than the compar-ative figures for Germany (55%), France (45%) and the UK (35%).

The process of bank disintermediation is mainly noted among large companies. More specifically, the audited accounts of non-financial Spanish compa-nies belonging to the IBEX 35 between 2010 and 2016 shows that these have consolidated a financ-ing structure that is more balanced and flexible, with a greater weighting of bonds (+30% in the period analysed), equity (+24% in the period analysed) and a lower proportion of bank financing (-42%). In contrast, access to the finance market on the part of smaller businesses is limited and, as a result, these will remain very much dependent on bank credit. Accordingly, there is a challenge in en-abling these types of businesses to gain access to alternative sources of financing. In the specific case of the Alternative Bond Market (MARF), since creation in 2013 it has channelled 6.5 billion Euro in issues to companies. The future development of this is dependent upon the number of businesses capable of meeting the requirements for operation in this market. In 2017, the average sales of com-panies operating on the MARF exceeded 50 million Euro. If we bear in mind that only 0.1% of businesses within Spain have a turnover in excess of 50 million Euro, only 3,500 potential businesses would be able to issue bonds on this market.

Within European securitisation markets, Spain rep-resents just 10.7% of the total issued in 2017, be-low the figure for France (15.4%) and Italy (12.3%), whilst exceeding that of Germany (5.4%). Greater development of this market would contribute to im-proving the efficiency of the assignment of resources and risk diversification, reducing the cost of capital and driving the growth of the economy and our busi-nesses.

According to the OECD, venture capital investment in Spain stand at around 0.03% of GDP, at levels simi-lar to those seen in France and Germany, whereas in the USA and Israel this figure exceeds 0.3%.

Within this financial context, marked by the steady normalisation of monetary policy and greater regu-latory requirements, businesses must properly man-age their access to financing and thus drive growth. For their part, the financial authorities should adopt a series of measures, including:

• Establishing a single regulatory code and greater transparency that effectively protects consumers and investors.

• Reviewing bank regulation in the area of busi-ness financing, such that capital requirements do not penalize loans to small and medium-sized

businesses. The profitability of future projects, solvency and creditworthiness of businesses should be evaluated in granting credit, based on properly audited accounts (in abbreviated form where applicable). Furthermore, the same crite-ria should be applied in the stress tests on bank assets.

• Foster the use of and reduce the costs asso-ciated with non-bank financing instruments: debt funds, venture capital funds, MARF and the Alternative Investment Market (IAM). The devel-opment of alternative sources of financing must be accompanied by greater transparency and in-formation regarding the advantages and possible risks associated with their use.

• Simplify and homogenize the regulatory framework of the securities market, thus im-proving access to and the quality of information. This would attract new investors, following the experience seen in the UK and the Netherlands.

• Reconsider limitations to crowdfunding as per the model in the USA, bearing in mind the dif-ferences in financial aspects between the two countries.

• Harmonize the Venture Capital Act along the lines of European regulations.

• Ensure effective compliance with the regulations on payment terms, both on the part of Public Administrations and large companies. This would be achieved through audit verification effective payment of invoices within the time frame and the establishment of a penalty regime, following the model used in France.

• Increase the flexibility of policies for the defer-ment of debts to the Public Administration.

Business DynamismSpain requires new measures that guarantee mar-ket unity, favor compliance with the Payment Terms Act, drive the internationalisation of our businesses, make progress in terms of privatisation, foster entre-preneurship and enable the survival of viable busi-nesses within the framework of a modern, dynamic economic system.

MARKET UNITY

• Promote the effectiveness and transparency of the evaluation of the degree of compliance with the Market Unity Act on the part of autonomous re-gional authorities by the Quality Evaluation Agency (Ministry of Finance and Public Administrations), in order to eliminate duplication in administrative procedures for businesses and citizens.

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INTERNATIONALISATION

• Improve the financing of exporters through credit insurance, risk sharing programs with fi-nancial bodies through the CESCE, the fostering of guarantee companies using public, ad hoc guarantees, as well as the development and mon-itoring of channels of alternative financing.

• Provide more resources to ICEX and strengthen the role of economic diplomacy.

ENTREPRENEURSHIP

• Foster financing via business angels and pri-vate individuals:

Tax payable at 1% for capital gains obtained with start-ups, for acquisitions up to the fifth year as of constitution and with a minimum holding period of 2 years.

Integration of capital losses into income tax, with a limit of 150,000 Euro/year, it being possible to structure the excess loss over the following 4 years.

• Foster alternative methods of financing, with the creation of an Entrepreneurship Fund using privately managed public-private seed capital for the development of small businesses.

• Creation of a new system to calculate Social Security contributions for start-ups. This would be linked to turnover and apply to up to 100,000 Euro per year, later being proportional to this dur-ing the first 3 years.

BUSINESS COOPERATION AND CONCENTRATION

• Reactivate the tax deductions for goodwill out of mergers that disappeared on January 1, 2015.

PUBLIC COMPANIES

• Continue the process of privatizing public companies.

• Improve the corporate governance of public com-panies, expanding the presence of independent board members.

BANKRUPTCY

• Entirely eliminate the status of the Treasury and Social Security as privileged creditors.

• Eliminate the inheritance of debts to the Treasury and Social Security upon the acquisition of busi-ness units.

• During the preliminary insolvency proceedings, authorize Social Security and the Treasury to ne-gotiate together with other creditors.

• In arrangements with creditors, enable the ap-proval of agreements with narrow majorities.

• Regulate and professionalize the role of the insol-vency receiver, as in the UK.

• Speed up procedural and judicial processes and promote arbitration and mediation with the aim of achieving greater legal certainty.

MEDIUM-SIZED BUSINESSES

The crisis has accentuated the reduced average size of the business fabric in Spain by increasing the number of micro and small businesses (with less than 50 employees). These amount to 99.3% in 2017 in comparison with 99.1% in 2008. Of the remainder, 0.6% are medium-sized enterprises (between 50 and 250 employees) and 0.1% large companies (+ 250 employees). These figures are in contrast to those of Germany and the UK, where mi-cro-businesses carry less weight.

Despite representing just 0.7% of the business fab-ric in Spain, medium-sized businesses and large companies generate 56.8% of the Gross Added Value and 40.8% of employment. The reduction in staffing during the crisis was less marked in larger companies. Between 2008 and 2017, the number of employees in small businesses fell by some 31%, in medium-sized firms by 25% and, in the case of micro-businesses, by some 10%. In contrast, large companies have already managed to recover the levels of employment that they had prior to the crisis. In fact, if Spain had had the same business compo-sition as the UK during the crisis, over 500,000 jobs would have been saved.

Labor productivity likewise increases with the size of business. Accordingly, medium-sized and large businesses show the highest rates of Gross Added Value per employee. The productivity of our medi-um-sized and large companies is comparable to those in Germany, the UK and the USA. In some cas-es it is even higher than that of the USA if we com-pare medium-sized businesses, and exceeds that of Germany and the UK in the case of large companies. Accordingly, were the business structure in Spain to reach the size of that in Germany, our aggregate productivity would rise by some 13%, generating the appearance of 15,000 new businesses (12,000 of medium size) and 400,000 new jobs.

As a result, large companies positively contribute to the growth and economic stability of a country, due to their greater productivity and offer of more

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stable employment, as well as owing to their abili-ty to access finance more easily and at lower cost. All of this favors their propensity to look overseas, innovate, access technology and to develop, retain and attract talent. In addition, a business fabric dis-playing a larger average size enables countries to adapt flexibly to new global challenges, whether economic, geopolitical, demographic or technologi-cal. As a result, there is a need for Spanish compa-nies to grow in size. This requires the deployment of specific measures throughout all areas of our economy. In Spain, however, we see tax, employment and bureaucratic measures that discourage growth. Exceeding the threshold of 50 employees and/a cer-tain level of turnover (6 million Euro) or assets entails new duties, thus reducing the incentive to become medium-sized businesses, grow in competitiveness and obtain equity finance with greater ease. Raising these thresholds would shift the hurdle effect upwards, translating into the growth of the av-erage size of our business fabric.

Employment

• The constitution of a company works council, decided upon by the workers, should relate to a benchmark figure of 100 or more employees.

• Reduce the composition and number of em-ployees discharged to carry out the work of the council in medium-sized businesses (up to 250 employees).

Tax

• Raise the turnover threshold for payment by in-stalment of Corporation Tax and the settlement of VAT, as well as the threshold for inclusion among major taxpayers, from 6 to 20 million Euro.

• Minimize the imposition of Inheritance Tax, thus enabling the survival of the business project and work of family members at the head of the com-pany, following the example of Austria, Norway and Canada.

• Promote business growth and capitalisation, ex-panding tax benefits for those entities reinvesting profits won (for example, reintroducing exemp-tions for reinvestment).

Administrative area

• Establish a new “abbreviated” audit process for businesses that meets two of the following three criteria: assets between 2.85 and 4 million Euro, turnover between 5.7 and 8 million Euro, and/or less than 50 employees.

• Extend the use of single points of contact with Public Administrations such as in Sweden, Den-mark and Austria.

Business cooperation and concentration

• Foster the appearance of new business support programs, taking Cre100do as a benchmark, therefore providing access to experts in areas such as human resources and technological in-novation, among others.

• Identification and definition of maps with windows of opportunity in different sectors of activity.

• Introduce some type of specific deduction for costs incurred by small and medium-sized enter-prises in merger processes.

Financing

• Reviewing bank regulation in the area of busi-ness financing, such that capital requirements do not penalize loans to small and medium-sized businesses.

TAX

Following the reforms in 2014 and 2015, our tax system continues to levy rates and Social Security contributions above the average for the OECD and Eurozone. This greater tax pressure on labor and savings does not translate into increased collection (37.9% of GDP in 2017 compared with 46.2% for the Eurozone). Particularly worrying is the behavior of indirect taxation that, in the case of VAT, stands at around 6.5% of GDP. This is slightly above the figure for Italy (6.3%), though below the majority of European countries, such as Sweden (9.2%), Finland (9.1%) and Portugal (8.7%). This reduced revenue through VAT is partly explained by the incidence of fraud and the existence of the hidden econo-my, which in Spain amounted to 17.2% of GDP in 2017 (Schneider, 2017), exceeded solely by Greece (21.5%) and Italy (19.8%). Other reasons could be the high level of unemployment and self-employ-ment, a lack of tax awareness and education and the meagre competitiveness of our taxation system (Spain lies 28th out of 35 countries in the Tax Com-petitiveness Index 2017).

Spain continues to need new tax reforms that trans-late into an increase in collections without creating new taxes or raising existing taxes. This could be achieved through widening taxable bases, re-duced fiscal pressure on labor and savings, great-er awareness and education on the part of tax-payers and the fight against the hidden economy and fraud.

In the Círculos we understand that these new meas-ures would speed up the process of fiscal consoli-dation, economic growth and the creation of quality employment. At the same time, they would drive for-ward the competitiveness of Spain, the growth

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of our businesses, the attraction of investment and talent and the development of innovation. As a whole, this new tax reform would contribute to the sustainability of the Welfare State and to social fairness.

Legal certainty, transparency and neutrality

• Attain greater stability and predictability in the application and interpretation of the tax system by the Public Administration, such that domestic and international investors, businesses and citizens are guaranteed legal certainty.

• Improve transparency and access to informa-tion regarding collection according to the type of tax and with respect to the use of taxation, such as in New Zealand, Sweden and Norway.

• Simplify the tax system by eliminating certain taxes and improving the drafting of regulations with laws and rules that are clearer and more simple, such as in the UK. This would contribute to reducing the tendency towards litigation.

• Make the tax treatment of the economic ac-tivities of private individuals and legal entities comparable, bringing the rates of income tax closer to those of corporation tax and the taxable base closer to accounting profit.

• Apply the principle of joint tax responsibility in decisions regarding expenditure and the implica-tions thereof on revenue.

A more competitive tax system

• Simplify the Spanish tax system. This has reached a degree of complexity that is particu-larly negative in terms of legal certainty, economic efficiency and the cost of management, both with regard to Public Administration and the governed. This requires:

Eliminating taxes. The tax-raising powers of various Public Administrations have given rise to a multiplicity of different taxes that both overlap and fail to join up and that frequently are levied on the same taxable activities and subjects.

Clarify the drafting of tax regulations using laws that are more straightforward, eliminating unnecessary requirements by means of clearer regulations.

Reduce the indirect tax pressure borne by businesses, reducing reporting duties to terms that are reasonable as well as modifying the time frames and methods of conflict resolution,

whilst promoting the possibility of reaching for-mal agreements with the tax authorities.

• In terms of corporation tax, establish a single, lower rate of around 20% and a framework of tax benefits comparable to those of the most compet-itive countries in the EU, such as Sweden, the UK and the Netherlands.

• With regard to VAT, simplify the design and reas-sign taxable assets to the general rate or reduced rate in accordance with the framework adopted by the majority of the countries of the EU, and particularly that applied in Austria and Germany.

• With respect to Social Security contributions, reduce the burden on the employer and, in tan-dem, move steadily towards a contributory frame-work where the share is more evenly balanced. This will guarantee the adequacy and sustainabil-ity of the pension system, such as occurs in Ger-many, Austria, the Netherlands and the UK.

• In terms of income tax, increased collection through widening of the taxable base and in-creased employment would enable marginal rates to be made comparable to the average for the OECD or the Eurozone.

• Due to the fact that it represents over-taxation on savings, minimize the burden of Inheritance Tax by adjusting the maximum rate to the OECD average (15%).

• Considering that this has practically disappeared throughout the OECD, eliminate wealth tax, as carried out in countries such as Austria, Canada or Sweden.

• Reduce the administrative load borne by busi-nesses by rationalizing the duty to notify, the duration of verification actions and the conflict resolution time frames and methods, promoting the possibility of reaching formal agreements with the tax authorities as per the experience of the Netherlands and New Zealand.

• Expand tax benefits to those businesses rein-vesting profits and establish special income tax regimes that favor the attraction and retention of talent and the effective installation of centers of competence of multinationals in Spain. Similarly, strengthen tax measures that are favorable to-wards the expatriation of staff connected with the internationalisation of Spanish businesses.

• Due to the fact that it represents a disincentive towards technology start-up entrepreneurs and towards innovation, eliminate the exit tax (in force since January 1, 2015).

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• Improve the efficiency of the tax authorities and the relationship with taxpayers:

Encourage cooperation between taxpayers and the tax authorities. The latter must be seen to be cooperative with taxpayers who meet their obligations. This could be performed in line with models that have proved particularly fruitful among the most advanced of our neighbors (for example, the UK).

The tax authorities must use language that is more understandable and precise in their rela-tionships with taxpayers.

Create tax procedures that enable information crossover and reduce the management obliga-tions that currently fall upon taxpayers.

Encourage greater coordination between the General Directorate of Taxation and the Treas-ury.

Peed up administrative and judicial conflict res-olution, introducing alternatives to litigation that are more predictable and stable (tax arbitration and mediation), following the experience of the UK, Portugal and Belgium, whilst providing the authorities with greater resources.

• Promote fiscal education and make citizens aware of their shared obligations toward the Wel-fare State. They must be made aware of the costs associated with public services and benefits and the challenge of sustainability in the face of an ageing population..

The fight against the hidden economy and fraud

• Promote education and social awareness of our shared responsibility towards the Welfare State, such as in Sweden, Chile and Japan.

• Prioritize available resources, strengthening in-vestigative activity and the exchange of informa-tion between Public Administrations.

• Increase the resources for tax inspections in order to speed up investigations.

• Provide tax incentives to stimulate activity, such as in France, as well as toughen up the pen-alties imposed, as in the case of Norway and the Netherlands.

• Adopt measures to make the payment of com-mercial transactions by electronic means more common, as in the Scandinavian countries.

• Change the system of bonus remuneration for in-spectors, substituting the drawing up of reports for the severity of penalties.

The Contribution of Public AdministrationSpain maintains a high level of public deficit that hin-ders additional gains in growth and competitiveness. Having closed 2017 with the deficit in line with the target agreed with Brussels (3.07% vs. 3.1%), Spain should reach 2.2% this year, thus leaving the EDP. Moreover, the European Commission envisages that the structural deficit (that eliminates the cyclical fac-tor of the economy on the public accounts) will fall from 3.3% of GDP in 2016 to 3.1% in 2017. Never-theless, this is still 2.1 percentage points above the Eurozone average. The trend in the primary budget balance (-0.6% of GDP in 2017), the central gov-ernment deficit (-1.86% of GDP) and that of Social Security (-1.48% of GDP), as well as the high level of debt (96.3% of GDP), hinder any scenario of fiscal consolidation.

The primary deficit for Public Administrations as a whole, which discounts the servicing of public debt, stood at -0.6% of GDP in 2017 (European Commis-sion, 2018), far from the OECD recommendations which consider that, in order to speed up the pace of fiscal consolidation, it is necessary to generate a primary surplus of at least 1%.

Despite the fact that the nominal GDP of Spain grew by some 4% in 2017, the reduction of debt as a proportion of GDP is moderate. Total public debt amounted to 96.3% of GDP (96.9% in 2016), that of central government representing some 86.9% of GDP, the autonomous regional authorities some 24.8%**, Local Corporations another 2.5% and the Social Security some 2.3%. Since 2007, the debt of the autonomous regional authorities has grown at a faster pace, some 365% compared with the 223% of central government, although they matched each other over the last year (+4%).

Although total public spending fell slightly in 2017 (to 41% of GDP), and remains below the average for the EU (47.1%), the necessary fiscal consolidation and compliance with excessive debt procedures require that our Public Administrations improve their efficiency, transparency and responsibility in budget execution. Since 2007, the produc-tion costs of Public Administration have gone from 19.5% of GDP to 21% in 2016. This is mainly due to the trend in the labor costs of public sector em-ployees increasing by 1 percentage point over GDP during this period (OECD 2017).

Among other factors, our Social Security system is conditioned by the ageing and increased life ex-

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pectancy of Spanish society. In addition to other social balance sheet items, the increased expend-iture on pensions is putting the sustainability of the Welfare State at risk. Since 2007, the ratio of contributors/pensioners has continuously fallen from 2.71 to 2.23 in December 2017, whereas the average retirement pension has increased by some 30%. Together with insufficient revenue, the growth in pensions has brought about the need to finance the system using the Reserve Fund, the balance of which amounts to 8.095 billion (0.7% of GDP), hav-ing reached 66.815 billion in 2011. At this current rate of outlay, the Reserve Fund will be depleted this year. As a matter of fact, in 2018 the forecast Social Security deficit of 1.1% of GDP will be financed by means of a drawdown from the Reserve Fund and through a new government loan of 15.164 billion Euro (10.192 billion in 2017).

This situation requires structural reform of our pension system. Although the parametric reforms approved up until now (postponement of the age of retirement, increase in the number of years contri-bution for pension calculation purposes, etc.) have contributed towards its sustainability, they do not provide a future guarantee of pension amounts and simply postpone resolution of the problem.

Spain needs an Administration that guarantees the current Welfare State by using fewer resourc-es, offering greater quality and efficiency, and that is at the service of citizens and businesses. It is like-wise essential to increase the transparency of Public Administrations, making further advances in the fight against corruption and being in possession of a simple, stable and predictable regulatory frame-work that favors economic growth and fairness. In turn, Spain needs to improve the functioning and quality of our judicial system. The competitive-ness of a country is closely related to the institutional legal framework, the rule of law and legal certainty being essential elements of this.

Any improper functioning generates cost increments that impact society as a whole, affecting vitality and economic growth. More specifically, it has negative consequences on the creation, growth and degree of specialisation of businesses.

International comparisons reveal deficiencies re-garding our administration of justice. In the Rule of Law Index 2017-2018 (World Justice Project) Spain occupies 23rd place out of a total of 113 countries analysed, 23rd out of the 35 high income countries and 16th out of 24 within the regional grouping of the European Union, North America and EFTA. The main problems are focused on the areas of civil jus-tice and, above all, criminal justice, failings in the proper execution of judicial decisions and the risk of

government interference in the workings of courts. According to the 2017 EU Justice Scoreboard of the European Commission, the Spanish judicial system needs to make progress in reducing the time period for trials, the rate of resolution and the number of cases pending.

Lastly, corruption and the lack of ethics repre-sent a direct threat to the sustainability of the Welfare State, removing public resources from essential areas such as education and innovation, or leading to poor management of these with the assignment of contracts on grounds that are not justified on the basis of economic efficiency. Rep-resenting an annual economic cost of 1% of GDP (Schneider 2015), this situation limits the improve-ment of our productivity and the creation of more sustainable, inclusive growth. According to the Cor-ruption Barometer of Transparency International, Spain is not a corrupt country in that the percentage of genuine corruption cases stands at around 5%, at a level comparable to that of Germany, France and the Netherlands. However, the presence of unethical conduct and corruption in numerous areas of our society feed the sensation and perception that it is widespread. As a consequence, it has generated disaffection towards our institutions, as shown by the loss of trust in politicians and the representa-tives of society and business. It is therefore urgent to strengthen basic principles such as transpar-ency, responsibility and accountability, without prejudicing the economic freedom that characterizes countries with lower levels of corruption.

QUALITY AND EFFICIENCY OF PUBLIC SERVICES

• Restructure territorial administration by re-ducing the number of town and city adminis-trations or resizing their structure, eliminating Delegations where applicable and centralizing services, thus achieving economies of scale and enabling collaboration between joint authorities that share common services or facilities.

• Bolster the mechanisms for coordination and collaboration with autonomous regional authorities in order to avoid the application of unequal criteria in different areas of the country in matters such as domestic trade, consumer spending and environmental policies.

• Extend the use of statements of compliance and the concept of positive failure to respond.

• Foster public-private collaboration in the provision of services, outsourcing the activities of Public Administration that may be performed jointly with the private sector, providing greater cost efficiency and quality of service as well as in-

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creased flexibility and responsiveness in adapting to the changes that will occur in society.

• Evaluate economic policies proposed by the Public Administration and political parties, improv-ing transparency and accountability in line with the example of existing institutions in the Neth-erlands, In order to achieve this, it is necessary to create an independent, autonomous body with a president designated by Parliament for a single, non-renewable ten-year period. This body should be integrated within the Economic Policy Office and the Audit Court, and should be responsible for checking and publicizing all accounts of the Public Administration and their dependent entities (forecasts and performance) through a report that brings together all revenue and expenditure of the Public Administrations as a whole.

• Modify the Public Sector Employees Statute, introducing mobility, flexibility and incentives in existing contracts and approving a new legal framework for new contracts that is more similar to the private sector in terms of hiring, dismissal and remuneration. This would bring this system closer to the public sector model of countries such as the UK, Denmark and Sweden. Reserve the status of civil servant for positions of respon-sibility within Public Administration whose stabil-ity or independence is necessary for the proper functioning of institutions, as occurs in Sweden and the UK.

• Regenerate a spirit of public service in order to create Public Administrations that serve citizens, are committed to efficiency and effectively using their resources in the pursuit of social policies and that minimize administrative costs and prioritize expenditure policies.

• Strengthen the joint responsibility of users in the provision of services by public administration.

• Professionalize the management function of public bodies, with the aim of increasing their sta-bility, independence and long-term outlook when faced with changes in the political cycle.

• Increase transparency and the good govern-ance of our public administration, by:

Expediting information access applications, claims, complaints and appeals processes.

Improving protection for whistle-blowers.

The information available on the actions of Pub-lic Administration must become more accessi-ble, understandable and comparable so as to facilitate public scrutiny.

SOCIAL SECURITY AND PENSIONS

Short-term measures

• On the expenditure side

Creation of notional accounts in which the individual contributions of each contributor are recorded, along with the earned income corre-sponding to their working life, calculated with a notional rate linked to a macroeconomic varia-ble such as in Sweden and Italy. The advantage of this mechanism is greater awareness of the financial situation of the system by establishing a closer relationship between individual contri-butions and pensions. Improve perception and transparency with regard to the possible future income of individuals, thus enabling them to make forecasts and savings decisions.

Steadily increase the number of years con-tributions that are taken into account in the regulatory base of the retirement pension, ex-tending this period to the entire working life in the future. This measure would increase the proportionality of the system, in other words, the relationship between the pensions received and contributions made, as occurs in Austria, Finland, Portugal and Sweden.

De-incentivize early retirement and encour-age the voluntary extension of the working life beyond 67. This will have a positive ef-fect on the working population and reduce pension costs. This measure addresses a new socio-economic reality consisting of rising life expectancy and living conditions, the delay in joining the labor market and the increasing automation and digitalisation of work, among other factors.

Link pension rises to productivity, following the experience of Sweden.

Commit to the efficiency of Public Adminis-trations, using resources with greater trans-parency, control and quality, whilst allotting mechanisms from the private sector to public services.

• On the revenue side

Finance the entire amount of non-contrib-utory pensions out of the General State Budget, carrying out tax and employment reforms that support job creation and the es-tablishment and growth of businesses, whilst reducing the size of the hidden economy. All of the foregoing items would favor increased collections and the financing of these pensions.

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Although it would represent an increase in revenue for the system were the upper limits to the bases for Social Security contributions to be raised, it would be necessary to evaluate the impact of this on job creation, the growth of businesses and on productivity. The increas-es in salary costs derived from this measure would have highly negative consequences on employment, particularly in the case of the Spanish economy, where 99.3% of the busi-ness fabric is comprized of micro and small businesses. Eliminating salary floors and ceil-ings (maximums and minimums) must be vol-untary for the worker, requiring the introduction of a framework of notional accounts and the absence of a maximum pension limit.

Present a new framework for Social Secu-rity contributions, seeking a better balance between the contributions of employees and employers in line with the models followed by the UK, Austria, the Netherlands and Germany.

Introduce tax measures aimed at incentiv-izing personal savings, particularly in terms of pension plans.

Measures to increase the birthrate and in-corporation of women into the labor mar-ket, strengthening the reform of parental leave and resources for the care of pre-school chil-dren (between 0 and 3 years).

Promote education regarding personal fi-nance and making provision for the future, whilst making citizens conscious of their joint responsibility concerning the Welfare State.

Long-term measures

• Progressively transform the current allocation system into a mixed system based on three pillars (distribution, compulsorily funded and vol-untarily funded) in order to guarantee respectable provisions over the long-term, such as in Sweden.

The first pillar would be oriented towards guaranteeing a minimum standard of living with basic pensions. It would work as a public pen-sion system using notional accounts, comple-mented by the non-contributive pensions.

The second pillar would consist of a com-pulsorily funded system that would receive contributions from workers and employers. The target would be to bring the pension close to the standard of living that the person enjoyed during their working life.

The third pillar would correspond to the current system of voluntary contributions

to pension plans and funds. Attempts would be made to promote this through tax treatment giving greater incentives than at present, with the aim of generating a complement to pen-sions for those persons wishing to carry out this type of saving.

• The allocation would require modifications regarding its current working, aimed at strength-ening it financially. in addition to new formulas for the calculation of the regulatory base that take account of a greater part of the working life of the individual. As discussed, this reform would be aimed at achieving five basic principles:

Promoting personal responsibility as a ba-sic element that guarantees benefits that are sufficient during retirement. Aside from indi-vidual freedom, the pension system must be based on principles of justice in terms of the burden borne by different generations and on the protection offered to those less fortunate. The system must aspire to achieving a balance between two concepts: freedom, such that each individual is able to take decisions that will affect their future by means their current ability to save, and justice, caring for those whose capacity in this respect is very limited or non-existent.

A simple system, understandable by every-one, and that clarifies the role to be performed by the state, businesses and workers.

It must be affordable and not lead to perverse macroeconomic effects.

It must be sustainable.

It must be based on wide, long-lasting social consensus.

• Diversify the investments of the Reserve Fund, following the experience of Norway, in-cluding the sovereign debt of other countries and corporate debt securities, initially with a residual percentage that could be increased progressively in order to incorporate a percentage of equity se-curities at a later date. This would guarantee the survival of the fund and increase its profitability.

A FASTER, MORE SECURE JUSTICE SYSTEM

• Properly guarantee legal certainty:

Improving the technical quality of regulations and making public consultation of planned laws more widespread.

Ensuring the stability of regulations so as to avoid surprises that hinder business planning.

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• Promote the efficiency of the management of justice expenditure through proper coordination of all Public Administrations involved and greater participation on the part of the judiciary.

• Revise the system for the training and se-lection of judges, granting greater weight to the period of traineeship and encouraging spe-cialisation, such as in Germany. Recruitment and training plans should grant greater importance to techniques in the management of public affairs, as well as to knowledge of IT and accounting.

• Reduce the tendency towards litigation, par-ticularly within administrative law, adopting the following measures:

Constitute independent authorities to review actions on the part of the authorities.

Establish mechanisms that prevent Public Ad-ministrations from handing down judgements that are identical to others pending final judicial verdicts and transposal into law.

Within the area of administrative law, penalize Public Administrations for the imposition of fines and/or penalties that are revoked judicially or for the arbitrary use of this area of law. This could be achieved through the creation of an independent supervisory body that is compe-tent to this effect.

As in the case of civil law, regulate class actions such that claims with the same origin or based on the same motive are brought together.

• Encourage the use of out-of-court conflict resolution mechanisms, such as arbitration and mediation. Following the experience of Italy, the legislator could make the latter mandatory in cer-tain cases and under certain conditions.

• Strengthen the technological modernisation of the Justice system, ensuring the maximum de-gree of compatibility between the IT systems of different regions and proper training in this area for judges, attorneys and other staff serving in justice administration.

• Create an independent agency with its own budget to design the technology strategy for the justice system in Spain, in agreement with Public Administrations, the General Council of the Judiciary and the Attorney General’s Office.

• Deploy appropriate ITC criteria and systems that enable evaluation of indicators of judicial activity, establishing a system of targets and incentives based on results, quality and time.

• Within the framework of competition law, ensure that judges review the factual and legal ques-tions that businesses put forward in their appeals against the decisions of competition authorities.

• Guarantee compliance with article 301 of the Criminal Procedure Act. This establishes that summary proceedings remain secret until such time as oral proceedings are opened, with the exceptions set out in the law itself.

BUSINESS ETHICS

• Together with politicians, the Public Administra-tion and citizens, businesses must develop ethi-cal, responsible behaviors.

• In tandem with legitimate profit seeking, busi-nesses must encourage training and equality of opportunity among their employees, whilst being committed to their shareholders, suppliers, clients and the macroeconomic environment. They must likewise develop social responsibility policies.

• From the business world, it is essential to insist on the importance of ethical behavior and the promo-tion of values such as solidarity, transparency and good governance.

THE FIGHT AGAINST CORRUPTION

• Through political consensus, develop a com-prehensive, strategic plan against corruption that, among other measures, sets out new ethical codes for public service and reduces immunity. In addition, the Public Service Contract Act should be updated in line with the European directive on public sector contracting.

• Guarantee the constitutional principle of the presumption of innocence of defendants until proven guilty by final sentence. In the event of this happening, eliminate pardons in cases of corrup-tion.

• Urgently approve the Regulations on the Transpar-ency Act and promote the exposure of this.

• Following the experience developed at a business level, establish a Whistleblower Protection Act that guarantees the legal certainty of citizens who wish to disclose fraud and corruption.

• Business people and business associations must expose unethical attitudes and conduct, extend-ing the establishment of codes of conduct and mechanisms for supervision, control and sanc-tions. They must also further the use of internal whistleblowing systems, as exist in the majority of listed companies and, at a general level, in the UK and France.

• Introduce the concepts and subject of ethics, values, transparency, honesty and corruption pre-vention at all levels of education.

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Equality and work-life balanceAs in the case of a number of countries within the EU, the ageing of the population in Spain represents one of the greatest challenges faced over the me-dium and long term. If measures are not adopted, this demographic transformation will lead to direct impacts on economic growth and per capita income due to the reduction in the labor supply, demand and investment. There are estimates that point towards a 1% increase in the dependency rate reducing av-erage savings by between 0.5 and 1.2 percentage points. Moreover, lower aggregate demand could spark off deflationary pressures and impact the sus-tainability of the Welfare State.

The ageing of the population is explained by the rise in life expectancy and the progressive, severe fall in the birth rate in Spain since the 1980s. The steady increase in life expectancy makes Spain one of the countries with greatest longevity in the world. Average life expectancy is now 83.1 years, five more than the figure just two decades ago. In 2030, Spain will be the fourth placed country worldwide in terms of highest average age, 50.1 years compared with 33.1 at a global level. 25% of the Spanish popu-lation will be over 65 years of age, compared with the current 16.7%. The working age population will experience a fall of 5%. In turn, the retirement of the baby boomers will raise the dependency rate from the current 52% to 61% in 2030 and to 95% in 2050. Added to this fact is the reality that our birth rate remains at 1.32 compared with the OECD aver-age of 1.7 in 2015. This is far below the replacement level fertility rate of 2.1, and lags behind other Eu-ropean countries such as France and the Scandina-vian countries. The quality of employment and the difficulty of reconciling working and family lives are delaying and hindering attempts to reach the desired number of at least two children, according to the 2011 Eurobarometer “Fertility and Social Climate”. Taking France and the Scandinavian countries as a benchmark, greater incorporation of women with-in the labor market and increases in their income, along with measures to favor the work-life balance, appear to have a positive impact on the birthrate.

Economic authorities must be conscious of the im-portance of a young workforce as a source of dyna-mism and in the generation of knowledge and ideas. As a result, it would be desirable to adopt specific measures in line with the recommendations of the EU. Among these, we may highlight those aimed at raising birthrates whilst simultaneously favoring the incorporation of women into the labor market and the establishment of a proper work-life balance.

OECD countries dedicate an average of 2.55% of their GDP to financial and tax incentives, primarily through cash transfers. This amount rises to 4% in Denmark, Ireland and the UK. Spain spends ap-proximately 1.5%, above the figure for South Korea

(1.16%) and Portugal (1.45%). In the specific case of tax benefits, the French economy shows the greatest weight towards these types of instruments (0.68% of GDP compared with 0.13% for Spain). The French system enables deduction of expenses linked to child care with domestic assistance or out of the home in the tax declaration alongside the minimum per family. In addition, tax credits are granted to companies that provide their employees with child-care assistance services.

Good family assistance policy could improve the cur-rent situation, though would not lead to an immedi-ate turnaround in this demographic trend. Although there is an extended period of maternity leave for childcare in Spain, economic incentives remain meagre and there is considerable room to expand the services and assistance available to parents with children of less than 3 years of age. Current family support policies in Spain are clearly insufficient to reverse the worrying demographic trend and buffer the socio-economic consequences of this over the medium and long term. As a result, it is both nec-essary and urgent to redesign policy in line with the successful experiences of our economic and social peers and thus guarantee a proper intergenerational balance.

MEASURES ON THE PART OF PUBLIC ADMINISTRATION

Education

• Bolster education regarding equality and, more specifically, the need to share domestic chores. Among OECD countries, a positive cor-relation is noted between the birthrate and the sharing of childcare.

• Establish a curriculum subject in secondary education concerning personal finance, making students active participants in their future shared responsibility regarding the Welfare State. The greatest contribution to debate on this question has come from international initiatives, particu-larly those of the OECD, which has promoted the International Network on Financial Education (INFE), created in 2008 and in which 110 coun-tries participate.

Work-life balance

• Improve childcare infrastructure and servic-es for children of pre-school age, particularly those aged 0 to 3 years, by means of the devel-opment of a more extensive network of nurseries, such as in France and the Scandinavian countries.

Adapt the school timetable and school holidays to working times, such as in the UK and Germa-ny. These have remained practically unaltered in Spain for the last 50 years and do not take into account the new realities of family life and of the labor market.

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• Encourage the increased incorporation of women into the labor market. Although in some countries of the OECD it is noted that a greater proportion of working women initially reduces fertility, this sub-sequently recovers with families enjoying greater income and well-being. As a result, it is necessary to consider a new framework of shared parental leave and encourage tele-working and flexitime.

In the case of shared parental leave, Spain should reformulate the design of this, taking the models followed by Iceland, Norway and Sweden as a benchmark. Mandatory paternity leave in Iceland, under the same financial conditions and for the same term as maternity leave (13 weeks), has proved an advance in terms of equality in the labor market and childcare. In the event that par-ents choose remunerated parental leave in Norway and Sweden, the total period is shared between the two. More specifically, the father is assigned a number of days or weeks that, in the event of remaining unused, are not transferable to the mother. For its part, the European Commission proposes 4 weeks of non-transferable parental annual leave until the child reaches the age of 12.

• Introduce new financial and tax incentives in line with the framework of OECD countries that represent examples of good practice in the de-sign and implementation of policies to increase the birthrate. These are primarily pursued through cash transfers to families with children (subsidies, remunerated parental leave...), public expenditure on family services for childcare and preschool education (direct financing of parents subject to

specific goal...), as well as exemptions, deduc-tions and tax credits. It would additionally be possible to give tax benefits to businesses that create nurseries for the children of their employees.

MEASURES ON THE PART OF BUSINESSES

Businesses must also commit to improving the work-life balance for reasons of both social and corporate responsibility. The implementation of this will have positive effects on the motivation of em-ployees, the workplace environment, the manage-ment of free time, productivity and the retention of talent. Together with the measures envisaged in leg-islation (maternity and paternity leave, allowances...) and the possible existence of workplace nurseries, businesses may voluntarily opt to explore flexibility in terms of both timetable and location, enabling a better balance between working and personal lives.

The development of these is conditioned by the size of the business fabric in Spain, in which mi-cro and small businesses predominate (99.3% of the total). These businesses have less capacity and few-er resources to get these types of initiatives going. As a result, it may be necessary to establish tax benefits or deductions in corporation tax.

In any event, it is necessary for the government, businesses and society in general to reflect upon the future framework of the working timetable in order to assimilate this within those of neighboring countries.

Recommendations

Flexitime

Starting and finishing time

Time banks

Compressed working day on Fridays

Facilitate changes in shift between staff...

Workplace flexibility

Teleworking

Video-conferencing to replace travel

Autonomy in the organisation of business

travel...

Flexible design of work and its process-es and content

Job sharing

Rotation of posts

When to work

Rest periods...

Flexibility in labor relationsPart-time working

Reduced working timetable...

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Appendices

Just as in previous years, the 2018 Barometer is structured by means of three instruments:

1. A review of published competitiveness indicators.

2. A survey designed specifically for this report.

3. The performance of 21 personal interviews with presidents and CEOs of leading companies within their sector.

1. Published sources

A comparative analysis of the strengths and weak-nesses of the Spanish economy has been performed based on a selection of the main competitiveness reports published:

• The Global Competitiveness Report of the World Economic Forum.

• The World Competitiveness Yearbook of the IMD.

• Doing Business by the World Bank.

This information is used to compare the business environment in Spain with those in the principal

OECD economies. The results of 40 international sector based indices have also been compiled for this edition (summarized in Appendix 2).

2. The Survey of the Barometer of the Círculos

A survey of business people has been carried out as a basis to draw out the main conclusions and recom-mendations in this document.

The sample comprises the members of the Círculo de Economía, Círculo de Empresarios Vascos, Cír-culo de Empresarios, Círculo de Empresarios de Galicia, Institución Futuro, Asociación Valenciana de Empresarios, Círculo de Economía de Mallorca, Círculo Empresarial Leonés, Fundación Conexus and Cre100do. Other businesspeople who are not mem-bers of the Círculos have been incorporated in order to ensure a representative sample, emphasizing a number of relevant sectors of the Spanish econo-my and including a sufficient number of small and medium-sized enterprises. This has enabled more concrete analysis of the problems specifically affect-ing this business segment. The final population size used amounted to 1,300 business people.

1. Methodology

98


340 questionnaires were collected, giving a response rate of 26.2%. The profile of companies surveyed is fairly heterogeneous, although respondents from the professional and financial services, electronics and technology, construction and engineering sectors predominated (Figure 65).

In terms of the number of employees, 23% were small businesses with less than 50 workers, another 24% were medium-sized firms of between 50 and 249 employees and the remainder consisted of large companies with 250 or more staff (Figure 66).

Figure 65 Profile of respondents – Main activity of their

company


Figure 66 Profile of respondents

– Number of employees in their company


0% 5% 10% 15% 20%

Professional services

Banks, insurance and other financial services

Electronics, information and communications technology

Construction, engineering services, aeronautics and aerospace

Food and beverage

Chemical products, pharmaceuticals, biotechnology and life and health sciences

Automotive and automotive components

Energy, renewable energies, environment, water and water and waste treatment

Retail distribution, retailers and consumer goods

Travel, tourism and leisure

Logistics and transport

Agriculture, forestry and fishing

Other

From 1 to 9 10%

From 10 to 49 13%

From 50 to 249 24%

From 250 to 499 9%

From 500 to 999 12%

From 1,000 to 9,999 23%

More than 9,999 9%

99

Appendices

Figure 67 Profile of respondents - Turnover


The distribution of companies by turnover is shown in Figure 67.

The survey consists of 55 questions, grouped in the following sections:

I. Current market situation and outlook.

II. Provision of basic infrastructure in Spain.

III. Functioning of the labor market in Spain.

IV. Functioning of the financial market in Spain.

V. Business dynamism and environment of the Spanish economy and contribution of Public Ad-ministrations.

VI. Indicators of social progress and social aspects of companies.

VII. Information concerning respondents.

In all sections (with the exception of information con-cerning respondents) we have included questions requiring an evaluation (some 53% of the total) and questions seeking prioritization (47% of the total). In the first category, we asked respondents to rate dif-ferent aspects on a scale of 1 to 7, with 1 being the most negative evaluation and 7 the most positive.

In the questions requiring prioritization, a multi-ple-choice system was generally used, respondents

being asked to choose the 3 most relevant options from among the different possibilities (the 5 most relevant in the case of priorities for economic policy in Spain). In this type of question they were also giv-en the chance of naming other relevant options that were not initially included.

A simple mean average was used to tabulate the answers of a numerical nature.

3. In-depth interviews

The results of the survey were compared and com-plemented by in-depth interviews, lasting approxi-mately an hour, with 21 businessmen included in the initial sampling.

To select the businesses for interview, the represent-ativeness of various industrial sectors was taken into account and both Spanish firms and the subsidiar-ies of foreign multinationals in Spain were included, providing a balanced, overall vision of our business activity. Interviews were also carried out with medi-um-sized businesses, enabling an in-depth view of the specific problems of these types of companies.

The interviews enabled a more detailed view of the areas analysed in the Barometer of the Círculos and greater awareness of how certain problems affect businesses. In addition, more precise information re-garding practices, examples and recommendations concerning their areas of activity was obtained.

Up to 10 million Euro

From 11 to 20 million Euro





From 501 to 1,000 million Euro

From 1,001 to 5,000 million Euro

From 5,001 to 10,000 million Euro

More than 10,000 million Euro

26%

10%

11%

14%

10%

5%

6%

5%

4%

9%

100


2. Other international rankings

GLOBAL COMPETITIVENESS INDICES USED BY THE 2018 BAROMETER

Index/Ranking Institution Subject matter Publications Total countries Position of Spain

World Competitiveness Yearbook World Competitiveness Center (WCC) IMD

Ability of nations to create and maintain a business climate

2018 61 36

Doing Business World BankMost favorable regulatory environment for the creation and operation of a local

business.2018 190 28

The Global Competitiveness Report World Economic Forum

Institutions, factors and policies that determine productivity

2017-2018 137 34

Social Progress Index Social Progress Imperative Sustainable growth 2017 128 16

OTHER COMPETITIVENESS INDICES USED BY THE 2018 BAROMETER (with high number of countries)


The Travel & Tourism Competitiviness Index (TTCI) World Economic Forum

Infrastructure, natural resources, policies that favor the sector

2017 136 1

Regional Authority Index Oxford UniversityAutonomy and regional control:

institutional, political, fiscal, in terms of credit…

2017 80 2

Healthiest Country Index BloombergLife expectancy, health risks, causes of

mortality……2017 163 6

The Energy Architecture Performance Index World Economic Forum

Sustainable, affordable and secure energy

2017 127 7

Environmental Performance Index YCELP Y CIESIN Environmental Sustainability 2018 180 12

Energy Trilemma Index World Energy CouncilEnergy security,

equitableness and sustainability2017 125 13

E-Government Development Index (EGDI) United Nations

Sustainable growth supported by e-government

2016 193 17

Gender Progress Index INSEAD Equality 2017 122 21

Logistics performance index (LPI) The World Bank Efficiency, quality of logistics, 2016-2017 160 23

Global Connectedness Index DHL Status of globalization 2016 140 23

Global Gender Gap World Economic ForumEconomic, political, educational and

health gap…2017 144 24

101

Appendices

GLOBAL COMPETITIVENESS INDICES USED BY THE 2018 BAROMETER


World Competitiveness Yearbook World Competitiveness Center (WCC) IMD

Ability of nations to create and maintain a business climate

2018 61 36

Doing Business World BankMost favorable regulatory environment for the creation and operation of a local

business.2018 190 28

The Global Competitiveness Report World Economic Forum

Institutions, factors and policies that determine productivity

2017-2018 137 34

Social Progress Index Social Progress Imperative Sustainable growth 2017 128 16

OTHER COMPETITIVENESS INDICES USED BY THE 2018 BAROMETER (with high number of countries)


The Travel & Tourism Competitiviness Index (TTCI) World Economic Forum

Infrastructure, natural resources, policies that favor the sector

2017 136 1

Regional Authority Index Oxford UniversityAutonomy and regional control:

institutional, political, fiscal, in terms of credit…

2017 80 2

Healthiest Country Index BloombergLife expectancy, health risks, causes of

mortality……2017 163 6

The Energy Architecture Performance Index World Economic Forum

Sustainable, affordable and secure energy

2017 127 7

Environmental Performance Index YCELP Y CIESIN Environmental Sustainability 2018 180 12

Energy Trilemma Index World Energy CouncilEnergy security,

equitableness and sustainability2017 125 13

E-Government Development Index (EGDI) United Nations

Sustainable growth supported by e-government

2016 193 17

Gender Progress Index INSEAD Equality 2017 122 21

Logistics performance index (LPI) The World Bank Efficiency, quality of logistics, 2016-2017 160 23

Global Connectedness Index DHL Status of globalization 2016 140 23

Global Gender Gap World Economic ForumEconomic, political, educational and

health gap…2017 144 24

102


WJP Rule of Law Index World Justice Project (WJP)Transparency, equality before the law, legal certainty, efficiency of the justice

system.2017 113 24

The Venture Capital and Private Equity Country Attractiveness

IndexIESE Business School

Attractiveness for venture capital and private equity investment (climate,

ease...)2016 84 26

The Worldwide Governance Indi-cators (WGI) The World Bank

Selection of 3 criteria: regulatory qual-ity, compliance with the law, control of

corruption2017 214 26

The Global Innovation Index 2017 The business School for the World Technology 2017 127 28

The Human Freedom Index Cato and Fraser Institutes Personal, civil and economic freedom 2017 159 30

The Global Entrepreneurship Index 2017

Global Entrepreneurship and Development Institute

Individual and institutional climate 2017 137 33

Networked Readlines Index (NRI) (The Global Information Technolo-

gy Report)World Economic Forum

Economic organization and man-agement based on the opportunities

offered by the Internet2016 139 35

The Global Talent Competitiveness Index The business School for the World Management of talent and aptitudes 2017 118 35

Corruption Perceptions Index (CPI) Transparency International. Corruption in the public sector 2017 176 42

Human Capital Index World Economic ForumAptitudes and capabilities in practice (education, well-being, participation in

the labor market…)2017 130 44

Index of Economic Freedom Heritage Foundation

Free movement of goods, capital, people (rule of law, interventionism, regulatory efficiency, openness of

markets)

2018 180 60

OTHER COMPETITIVENESS INDICES USED BY THE 2018 BAROMETER (low number of countries in the index)


Healthcare Efficiency index Bloomberg Healthcare 2017 54 3

Global Youth Well-being International Youth FoundationEquality, opportunities, education,

health, security, citizen participation, IT2017 29 6

Country RepTrak Reputation InstituteInstitutional Quality, Level of Develop-

ment and Quality of Life2017 55 13

Global Manufacturing Cost-Competitiveness Index Boston Consulting Group

Measurement of the costs of manufac-tured products in the 25 leading export

economies worldwide2016 25 13

Digital Economy and Society Index European Commission

Connectivity, human capital, Internet use, integration of digitalisation

2017 29 14

Global Connectivity Index Huawei Connectivity 2017 50 17

103

Appendices

WJP Rule of Law Index World Justice Project (WJP)Transparency, equality before the law, legal certainty, efficiency of the justice

system.2017 113 24

The Venture Capital and Private Equity Country Attractiveness

IndexIESE Business School

Attractiveness for venture capital and private equity investment (climate,

ease...)2016 84 26

The Worldwide Governance Indi-cators (WGI) The World Bank

Selection of 3 criteria: regulatory qual-ity, compliance with the law, control of

corruption2017 214 26

The Global Innovation Index 2017 The business School for the World Technology 2017 127 28

The Human Freedom Index Cato and Fraser Institutes Personal, civil and economic freedom 2017 159 30

The Global Entrepreneurship Index 2017

Global Entrepreneurship and Development Institute

Individual and institutional climate 2017 137 33

Networked Readlines Index (NRI) (The Global Information Technolo-

gy Report)World Economic Forum

Economic organization and man-agement based on the opportunities

offered by the Internet2016 139 35

The Global Talent Competitiveness Index The business School for the World Management of talent and aptitudes 2017 118 35

Corruption Perceptions Index (CPI) Transparency International. Corruption in the public sector 2017 176 42

Human Capital Index World Economic ForumAptitudes and capabilities in practice (education, well-being, participation in

the labor market…)2017 130 44

Index of Economic Freedom Heritage Foundation

Free movement of goods, capital, people (rule of law, interventionism, regulatory efficiency, openness of

markets)

2018 180 60

OTHER COMPETITIVENESS INDICES USED BY THE 2018 BAROMETER (low number of countries in the index)


Healthcare Efficiency index Bloomberg Healthcare 2017 54 3

Global Youth Well-being International Youth FoundationEquality, opportunities, education,

health, security, citizen participation, IT2017 29 6

Country RepTrak Reputation InstituteInstitutional Quality, Level of Develop-

ment and Quality of Life2017 55 13

Global Manufacturing Cost-Competitiveness Index Boston Consulting Group

Measurement of the costs of manufac-tured products in the 25 leading export

economies worldwide2016 25 13

Digital Economy and Society Index European Commission

Connectivity, human capital, Internet use, integration of digitalisation

2017 29 14

Global Connectivity Index Huawei Connectivity 2017 50 17

104


Better Life Index OECD Well-being 2016 38 19

Innovation Scoreboard European Commission Development of Innovation 2018 37 21

Sustainable Governance Index (SGI) Suistanable Governance Indicators

Socio-economic policies, environment, quality of democracy

2017 41 23

Global manufacturing competitiveness index Deloitte

Influence of manufactured products on the global economy

2016 40 25

International Tax Competitiveness Index Tax Foundation Tax competitiveness and neutrality 2017 35 28

World Talent Ranking IMDCompetitive talent: investment/

development, attraction and level of qualification

2017 61 32

Global Retirement Index (GRI) Natixis Well-being in retirement 2017 43 33

BlackRock Sovereign Risk index BlackRock Country risk 2017 60 40

3. List of examples of international good practice in the 2014 to 2017 editions of the Barometer of the Círculos

Best practice 2014

Basic resources: Mexico The adaptation of qualifications to

market needs in Querétaro

Germany. The dual vocational training system.

Business dynamism: Israel. Entrepreneurship.

Labor market: The Netherlands The part-time work system

Denmark, the UK, Belgium. Active employment policies

The UK, the Netherlands. Grading of the minimum wage

Public Administrations: South Korea. The streamlining of Public

Administration through the use of ITC.

UK. Intelligent regulation: transparency, queries and reasoned regulation

Sweden. Private sector management tools in the management of public services

Financial market: France. Alternative capital market for small and

medium-sized businesses.

105

Appendices

Better Life Index OECD Well-being 2016 38 19

Innovation Scoreboard European Commission Development of Innovation 2018 37 21

Sustainable Governance Index (SGI) Suistanable Governance Indicators

Socio-economic policies, environment, quality of democracy

2017 41 23

Global manufacturing competitiveness index Deloitte

Influence of manufactured products on the global economy

2016 40 25

International Tax Competitiveness Index Tax Foundation Tax competitiveness and neutrality 2017 35 28

World Talent Ranking IMDCompetitive talent: investment/

development, attraction and level of qualification

2017 61 32

Global Retirement Index (GRI) Natixis Well-being in retirement 2017 43 33

BlackRock Sovereign Risk index BlackRock Country risk 2017 60 40

3. List of examples of international good practice in the 2014 to 2017 editions of the Barometer of the Círculos

Best practice 2015

Basic resources: UK. Decisions on infrastructure projects.

Switzerland. University teaching system.

Business dynamism: UK. Support to entrepreneurship.

New Zealand. Support in the development and growth of small and medi-um-sized businesses.

Labor market: Germany. Decentralized system of salary

negociations,

UK. Active employment policies

Public Administrations: Finland. Functioning of the justice system.

Denmark. Civil Service.

Denmark, Finland. Reform of the territorial administrative structure.

Financial market: France. Banking disintermediation for SMEs. El

Fondo Novo.

France. Credit rating system for small and medium-sized businesses.

106


Best practice 2016

Basic resources: France. Planning and performance of infra-

structure projects

Switzerland. Vocational training

The Netherlands. Proficiency in languages

Finland. Quality of teaching staff

Business dynamism: The Netherlands. Entrepreneurial environment

Switzerland. Fostering of innovation in small and medium-sized enterprises: the Commission for Technolog-ical Innovation (CTI) Support for businesses in research

Labor market: Denmark. Collective bargaining

Austria. Youth employment

Public Administrations: Switzerland and Denmark. Analysis of the

effectiveness of public services for employment and deployment of best practices.

South Korea. Electronic administration in the courts

UK. National Audit Office (NAO)

UK. Anti-corruption regulations

Financial market: Germany and the UK. Compliance with pay-

ment terms

4. List of good business practices in the 2016 and 2017 editions of the Barometer of the Círculos

Best business practice 2016

1. Seat. Dual vocational training.

2. AECOC. Mass-market pact for employment.

3. Ferrovial. Intra-entrepreneurship.

4. Cre100do. Business growth

107

Appendices

Best practices 2017

Basic resources: Germany. Multi-modal infrastructure

Denmark Matching skills

France. Support to private R&D investment

Finland. Digitalization and ITC skills

Business dynamism: New Zealand. Business creation

Labor market: Sweden. Employee-employer relations

Netherlands. Assistance programs aimed at youth unemployment, “starting grant”

Public Administrations: United Kingdom. Efficiency of the tax system

New Zealand. Efficiency in public spending

Denmark. Judicial System

Finland. Anti-corruption environment

Financial market: Germany. Privately placed loans, Schuldschein.

France. Privately placed loan market, Euro PPs

4. List of good business practices in the 2016 and 2017 editions of the Barometer of the Círculos

Best business practice 2017

1. Bankia. Higher level dual vocational training in administration and finance

2. Telefónica. “Todos incluidos” program aimed at the employability of young people.

3. Repsol. Intra-entrepreneurship.

Bibl

iogr

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